As part of the Treasury’s wide-ranging measures to support the economy during the COVID-19 outbreak, the Chancellor has given the UK’s 11 million self-assessment taxpayers more time to pay their next income tax bills, which become due on 31st January 2021.
Some much-needed relief for limited company directors
A significant proportion of the UK’s self-employed – notably those employed by their own limited companies – have been excluded from the Chancellor’s income support measures. Although tax deferrals, and other measures have been made available to limited company directors, they are meagre forms of compensation compared to that offered via the Job Support schemes for employees and the ‘self employed’.
The next looming tax bill for the UK’s self-employed will fall due on 31st January 2021, when tax owed on income received during the 2019-20 tax year becomes payable via the self-assessment process. In September, the Chancellor announced that self-assessment taxpayers will be given the chance to pay anything owed in instalments – to ease the pressure.
Who pays tax via self-assessment?
If you are a director of your own company, you will need to register for self-assessment. If you work via an umbrella, and/or receive any income during the tax year upon which tax is due, you should also register.
Any tax due on income earned during the 2019-20 tax year, for example, must be paid by 31st January 2021. You may also have to make ‘payments on account’ – split between this date, and 31st July 2021, if you owe tax, and expect to earn a similar amount during the 2020-21 tax year.
You can request to lower these payments on account if you believe that your income will fall during the current tax year.
You can now apply for Time to Pay your tax bill
On 24th September, the Chancellor (Rishi Sunak) announced further support measures for businesses. This included an option for taxpayers to pay their self-assessment liabilities in monthly instalments.
This means that you can pay your second payment on account for 2018/19 (if you have deferred this until 31/1/2021), plus your tax liability for 2019/20 and payments on account for the following year (if applicable) over the course of 12 months.
Once you have submitted your tax return for 2019/20, you now have the option to set up a payment plan. You can specify how much of the tax you owe you want to pay right away, and how much you would like to pay in instalments.
HMRC will charge interest on any tax liabilities owed, from 1st February 2021 onwards.
Who can apply for Time to Pay?
You can make use of this Time to Pay arrangement if:
- You owe between £32 and £30,000. This threshold has been increased from the previous limit of £10,000.
- You are up-to-date with any outstanding self-assessment payments (excluding the deferred July 2020 payment on account, which was a pre-announced COVID-19 measure).
- You don’t have any other existing HMRC tax plans or debts.
You may still be able to use the scheme if you don’t fit these eligibility criteria.
The Winter Economy Plan also states: “Any Self-Assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay Self-Assessment helpline to agree a payment plan.”
If you would like more time to pay your tax bill, you can find out more from the HMRC site here.