Tax Tips – Business Question:
As the self-assessment tax deadline and payment date approach, I am concerned that I may not be able to pay my tax liability in full and was considering not filing my return until later in the year. Can you advise what my options are?
Where an individual’s tax liability is greater than £1,000, income tax is generally paid in 3 stages. Installment payments are due on 31 January and 31 July with a balance of tax due on the following 31 January. The installment payments represent 50% of the previous year’s tax liability but can be reduced if it is anticipated that the final tax liability would be lower than the previous year. Due to the COVID-19 pandemic, HMRC agreed that interest and penalties would not be charged if 2019/20, 2nd installment payment, was not met or paid in full by 31 July 2020, providing the payment was made in full by 31 January 2021.
For some taxpayers, their tax liability for the 2019/20 tax year would relate to profits that were earned prior to the COVID-19 pandemic, for example, a business with a year-end of 30 April 2019 would pay tax on these profits in the tax year 2019/20. Reserves that may have been set aside to pay the 2019/20 liability, may have been utilised to keep their business afloat. In addition to this, some tax-payers may also have delayed making the 2nd payment on account due on the 31 July 2020, which will also contribute to a higher balance of tax due on the 31 January 2021.
If a self-assessment return is not filed by 31 January 2021, this would give rise to an automatic penalty of £100 with additional penalties being incurred if the return remained outstanding, unless there was a reasonable excuse for late filing. However, due to the current COVID-19 pandemic, HMRC has announced that whilst they won’t waive late filing penalties nor extend the 31 January 2021 filing deadline, HMRC would take into account and Covid-19 disruptions (tax-payer or agent related) leading to a missed filing date when considering reasonable excuses. In addition to this, HMRC has also announced that they would extend the time period for appealing a penalty from 1 month to 3 months.