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Many businesses and individuals have suffered financially due to the coronavirus pandemic, and you may be worried about your upcoming tax bill. HMRC has expanded its online service to allow more people to spread the payment of their January 2021 tax bill over 12 monthly instalments. Keep reading, and we’ll explain everything you need to know.

What is a Time to Pay arrangement?

For many people, the upcoming January tax bill may seem like a daunting prospect because it consists of the balancing payment for the 2019/20 tax year, and the first payment on account for the 2020/21 tax year. If you deferred the 2019/20 second payment on account as part of the government’s support measures, this is also due.

The Time to Pay extension with HMRC allows individuals who may be worried about paying their upcoming January tax bill in one go to spread the cost over 12 monthly instalments. Recent changes to the scheme mean you do not have to discuss it with HMRC first and you can apply to set up your payment plan once you have submitted your 2019/20 self-assessment tax return. At the moment, you are still required to pay your first payment on account for the 2020/21 tax year as usual.

The Time to Pay extension is open to everyone as long as:

  • You owe £30,000 or less;
  • You do not have any other debts with HMRC;
  • You do not have any other payment plans with HMRC;
  • It’s less than 60 days after the payment deadline;
  • You pay the instalments by Direct Debit.

How do I set up an online payment plan?  

Before you start, you will need to have your Government Gateway account details to hand to enable you to log into HMRC’s online portal. Don’t worry, if you don’t have a Government Gateway account, you can set this up before you begin.

Once you have logged in, you can decide if you would like to pay a lump sum upfront to reduce the outstanding amount due, and how many instalments you would like to make (up to a maximum of 12).

If you cannot use HMRC’s online tool, you can still contact them to discuss setting up a Time to Pay plan. You can do this by calling the self-assessment payment helpline (0300 200 3822) or their coronavirus helpline (0800 024 1222).

Do I have to use a Time to Pay arrangement?

Until you have filed your self-assessment tax return and know your 2019/20 liability, you will not be able to determine whether a Time to Pay arrangement is beneficial to you. If you can pay your tax bill, you should do. A Time to Pay arrangement incurs an interest rate of 2.6% per annum, which is charged from 1st February 2021 on unpaid amounts by 31st January 2021 (until the outstanding payments are settled).

It is also advisable to check whether you can reduce your payment on account relating to the 2020/21 tax year. Reducing the overall amount of tax owed will reduce the amount outstanding and make your payment plan more manageable.

Please remember – you must include any taxable coronavirus grants you have received before working out if you can reduce your payment on account.

What happens if I am receiving tax or universal credits?

If you are receiving any means-tested benefits such as universal credits or tax credits and are worried about your upcoming 2021 tax bill – it is advisable you contact HMRC and discuss your situation with one of their advisers. HMRC may agree you do not need to make a payment until your position or income changes.

Speak to your Account Manager for more information

If you are a Bluebird Accountancy client and would like more information about setting up a Time to Pay arrangement, please contact your Account Manager. For more information about our services or to find out how we can support you and your business, please give our expert team a call on 0808 301 2389.

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