As HMRC is resisting calls for an easement on self assessment late filing penalties, ICAEW’s Tax Faculty outlines the options available to taxpayers and agents who will have difficulty filing or paying.
ICAEW has joined other professional bodies in urging HMRC to consider an easement of late filing penalties for the forthcoming self assessment (SA) deadline.
In a response issued before Christmas and the latest restrictions, HMRC explained its position of maintaining standard procedures as wanting to “encourage as many customers as possible to complete their returns by 31 January 2021, even if they can’t pay in full”.
HMRC did, however, promise to keep the situation under review.
While there remains no easement of penalties, the Tax Faculty confirms there are several options open to taxpayers in relation to filing and payment.
Where a return cannot be filed by the deadline the options are:
File the return with provisional figures for any missing information.
HMRC is highlighting this option and has confirmed that the practice is acceptable. The use of provisional figures should be noted in the appropriate box on the return. Agents are often not keen on this option due to the additional work required to amend the return and the risk of the missing information not being forthcoming, but it may be appropriate in certain cases.
File the return late and appeal against the late filing penalty on the grounds of reasonable excuse.
HMRC has confirmed that late filing of a return due to COVID-19 related delays may be grounds for reasonable excuse for late filing. It has also stated that this may also be the case where the delay is agent related.
Appeals can only be made once the penalty has been issued and the return has been filed. Taxpayers can use an online service to appeal against a penalty; agents will need to submit an SA370 or a letter. The usual 30-day period for lodging an appeal has been extended by three months for those affected by the pandemic.
Finalising tax credit awards.
31 January 2021 is also the date for providing final self-employment figures for tax credit purposes for 2019/20. Usually, such claimants will provide an estimated income to HMRC by 31 July. In July 2020 HMRC automatically renewed many such tax credit claims but ICAEW understands that HMRC will allow self-employed claimants to provide a final figure where they intended the figure on their auto-renewal notice to be an estimate and can do so even after 31 January 2021.
Note: The period of time available to HMRC to enquire into a return is longer when a return is filed late or is amended. The impact on fee protection and professional indemnity insurance may need to be considered where returns include estimates or are filed late.
The amount due on 31 January 2021 may include:
- Second payment on account for 2019/20 which was originally due on 31 July 2020 but was deferred.
- Balancing payment for 2019/20.
- First payment on account for 2020/21.
Where the taxpayer is unable to pay these amounts due on 31 January 2021, the options available are:
Consider whether payments on account can be reduced.
If the tax liability for 2020/21 is expected to be lower than that for 2019/20 it may be appropriate to reduce the first payment on account for 2020/21 that is due on 31 January 2021. This can be done on the return itself or by completing a form SA303. Self-employment Income Support Scheme grants are taxable in 2020/21 and should be taken into account when forecasting the tax liability for 2020/21, along with any other relevant grants.
Apply online for time to pay.
An online process allows those with a SA liability of £30,000 or less to apply for time to pay over 12 months. Applications made online are granted automatically so long as the conditions (such as all returns being up to date) are satisfied. The limit was increased from £10,000 to £30,000 in response to the pandemic. The online process involves setting up a direct debit and so is available to taxpayers but not agents.
Negotiate time to pay.
If the amount owed is more than £30,000 or a period longer than 12 months is required, the taxpayer or agent should contact HMRC to negotiate a suitable time to pay arrangement. The Tax Faculty has published guidance on negotiating time to pay with HMRC.
Note: To avoid a 5% late payment penalty, it is important to make the time to pay arrangement before 1 April 2021, the extended trigger date for that penalty. Interest is chargeable at 2.6% per annum on late paid tax even if a time to pay arrangement is in place.
Payment of national insurance
The interaction between Class 2 national insurance contributions (NIC) and time to pay needs to be considered.
On 8 February, HMRC confirmed that the usual position continues to apply. This means that Class 2 NIC must be paid by 31 January following the end of the tax year, for that year to qualify for claims to employment and support allowance (ESA).
DWP and HMRC have introduced a process to deal with the problem of claims for ESA where the contributions are not paid by 31 January because a time to pay arrangement is in place. The taxpayer should make the application for ESA to the DWP in the usual way.
Instead of refusing the claim the DWP will refer the taxpayer to a designated HMRC telephone number. HMRC will then reallocate payments to the Class 2 NIC liability. Once 72 hours has been allowed to elapse, the taxpayer should contact DWP again and the claim for ESA can then be processed.
Voluntary Class 2 NIC not paid by 31 January need to be paid directly rather than through SA.
If this affects you, contact HMRC as soon as possible for help.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
- 19 Feb 2021 (12: 00 AM GMT)
- The 'Late payments' section has been updated to refelct HMRC's announcement that it will not charge late payment penalties until 1 April 2021.
- 09 Feb 2021 (12: 00 AM GMT)
- The section on national insurance has been updated in light of HMRC's confirmation that the usual position continues to apply to Class 2 NIC payments.
- 19 Jan 2021 (04: 00 PM GMT)
- The section on payment of national insurance has been updated to reflect the new process introduced by DWP and HMRC to deal with the problem of claims for employment and support allowance where contributions are not paid by 31 January.
- 18 Jan 2021 (04: 00 PM GMT)
- In section "Late filing", the final paragraph referencing the 30-day period for lodging an appeal has been amended to "extended by three months" from "extended to three months".