What options are there to pay your deferred tax payment and when is best to do it?
Before you pay tax you want to look at your cash flow over the coming months to work when you’ll be able to pay.
The obvious option is to put everything off until HMRC’s deadlines, and hope to pay in one go.
That gives you breathing space for business to pick up and for cash flow to improve.
On the other hand, it means relying on unknowns, like the possibility of further lockdowns.
While the VAT deferral period finished on 30 June 2020, any deferred VAT should be paid in full on or before 31 March 2021.
HMRC will accept ad hoc payments; there’s no requirement to agree a special arrangement but there’s no financial penalty or black mark on your record if you leave the whole debt to settle on 31 March 2021.
HMRC won’t collect your deferred VAT automatically. You have to arrange to make the payment yourself.
HMRC allowed you to postpone the second self-assessment payment on account for 2019/20 if you were detrimentally affected by coronavirus. Strictly, it was due by 31 July 2020. The deal is you can pay it on or before 31 January 2021. After that HMRC will charge interest.
If you leave paying deferred income tax to January, remember there’s the balancing payment for 2019/20 on top of your first payment account for 2020/21 to find too.
So you might want to act now to make sure your cash flow doesn’t take all the strain in January. There’s no interest or penalties so long as you pay before 31 January 2021.
You have the option to settle in full at any point before January 2021. Use HMRC’s online service as usual to do this.
You can choose to pay in instalments any time between now and 31 January 2021. It’s simply done by using the online payment system and making ad hoc payments.
Alternatively, you could set up a budget payment plan. The procedure for this is slightly different if you are already paying overdue tax through a time to pay (TTP) arrangement.
But it may still be possible to include the second payment on account in the arrangement, in which case the sooner you contact HMRC to discuss it the better.
If you’re still struggling with finances because of coronavirus, or for any other reason, when you get to the VAT or income tax deadline, get in touch with HMRC’s TTP service.
It’s always best to do this as soon as you realise you won’t be able to meet a payment deadline.
There wasn’t a deferral for corporation tax (CT) but TTP arrangements are allowed for CT too.
If you have any doubts or concerns, contact your tax adviser or one of the team at Finton Doyle. We’d be happy to help.