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4 min read

Coronavirus: what if my small business can’t pay its tax bill?

There may be no need to panic if your small business is affected by coronavirus (Covid-19) and is unable to pay its tax bills…

How is Covid-19 impacting businesses?

As Covid-19 continues to overwhelm countries throughout the world, businesses of all types and sizes will be affected in numerous ways. 

Some businesses may be forced to cease trading altogether, because their sales will grind to a juddering halt or fall off too much. Many employees won’t be able to come into work, either because they’re sick, need to self-isolate or look after loved ones. Some won’t be able to work from home, simply because of the nature of the work they do. 

Many businesses will attempt to “keep calm and carry on” by allowing their staff to temporarily work from home, until (hopefully) things soon start to improve. But having less or indeed no revenue coming in will give many small-business owners and managers sleepless nights.

Staff and suppliers will still need to be paid, and failure to do so can have a disastrous domino effect on cash flows throughout supply chains. Many cash-strapped businesses will also have tax bills to pay in the coming months, too. So, if that includes you – what can you do?

Deferring Income Tax and VAT payments

The government announced earlier in 2020 that Income Tax and VAT payments could be deffered in order to ease the pressure on self-employed workers and businesses. 

  • The over half a million businesses who deferred VAT due in March to June 2020 are to be given the option to spread their payments over the financial year 2021-2022.
    • They will be able to choose to make 11 equal instalments over 2021-22.
    • All businesses which took advantage of the VAT deferral can use the New Payment Scheme.
    • Businesses will need to opt in, but all are eligible.
    • HMRC will put in place an opt-in process in early 2021.
  • Enhanced Time to Pay for Self-Assessment taxpayers
    • The self-employed and other taxpayers are to be given more time to pay taxes due in January 2021.
    • Taxpayers with up to £30,000 of Self-Assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months.
    • HMRC has also said that individuals who miss the 31 January 2021 self assessment deadline will not be subject to late penalties provided they submit by 28 February 2021. 

HMRC Time To Pay service

Around 95% of Self Assessments customers could qualify to implement a Time to Pay arrangement, according to HMRC. The new Time To Pay online facility means you’ll be able to do this without speaking to a HMRC advisor. 

In order to set up your own Time to Pay arrangement, you must meet the following requirements:

  • have tax liabilites between £32 and £30,000
  • have no outstanding tax returns
  • have no other tax debts
  • have no other HMRC payment plans set up
  • the payment plan needs to be set up no later than 60 days after the due date of a debt.

If you are using the Time to Pay service, interest will be applied to any outstanding balance from 1 February 2021.

If your Self Assessment debts are over £30,000, or you need longer than 12 months to pay your debt in full, you may still be able to set up a Time to Pay arrangement by calling the Self Assessment Payment Helpline on 0300 200 3822.

Before contacting HMRC, have to hand your tax reference number (eg your 10-digit Unique Taxpayer Reference and/or VAT reference number) and know the amount of tax that you’re struggling to pay. You may be asked how much you can pay immediately and how long you’ll need to pay the rest.

How does Time To Pay work?

For some years, companies, businesses and the self-employed have been able to seek a Time To Pay (TTP) arrangement. They “allow HMRC to collect tax in a cost effective way, as “viable customers who cannot pay on the due date [can] make payment(s) over a period that they can afford.” 

TTP arrangements are a kind of debt-repayment plan, and “viable customers” are businesses and self-employed people experiencing short-term cash flow problems, but who are otherwise profit-making. 

TTP arrangements are tailored to the customer’s ability to pay and typically last for two or three months, but can be longer (although TTP arrangements lasting more than 12 months are rare). As explained by HMRC on “Most TTP arrangements involve [making] regular monthly payments, but in exceptional cases they may involve a short period of deferral.”

According to HMRC: “Objective criteria are applied in each case” and “they’re entered into on a case-by-case basis.” HMRC must be satisfied that a business genuinely cannot pay its tax liability on the due date. The business must also make the best payment proposal that it can make. Payments must increase if the business’s ability to pay improves. 

And HMRC must be convinced that the business can pay the TTP, as well as other tax due during the period. Sums owed will vary, of course, and according to HMRC: “As a rule, the larger the liability, the greater the risk and the greater the need for more information” from the business. HMRC will never reduce the amount of tax due as part of a TTP arrangement.

Need to know: Time To Pay arrangements

  • Enforcement action

    HMRC will take “enforcement action” to get money it’s owed if you or your business does not pay its tax bills. You could also be subject to fines and interest payments.     

  • Early notification

    If you’re experiencing problems paying your tax or VAT bill – whether because of Covid-19 or for other reasons – contact HMRC as early as possible. Don’t leave HMRC to contact you because your payment is late.

  • HMRC form with money
    Tax payment avoidance

    HMRC will take a very dim view of any individual or business that’s simply trying to deliberately avoid paying its tax bills. And, after considering the evidence, it may not consent to a TTP arrangement. 

  • Accountant calculating the Saving Account Book and Statement of financial statements at home. Accountancy Concept.
    Prompt payment

    If HMRC agrees a TTP arrangement, you must make your payments in full on the scheduled date, otherwise HMRC could immediately cancel the arrangement – and demand the total debt plus penalties.

  • Interest and penalties

    If a TTP arrangement is agreed, expect interest to be charged on the amount payable, but penalties may be wavered if you’ve contacted HMRC promptly and you’ve acted responsibly to address the matter with HMRC.

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