Covid-19: HMRC clarifies self assessment tax payment deferral

Following some initial confusion, HMRC has now updated its advice for businesses and individuals affected by coronavirus to make clear that the six-month income tax self assessment deferral for payments due in July applies to all taxpayers, and not just those who are self-employed

Anyone due to make a second payment on account for 2019/20 by 31 July, but who has difficulties in doing so because of the impact coronavirus causes, may defer payment until January 2021.

As regards eligibility, the guidance now states: ‘You are eligible if you are due to pay your second self-assessment payment on account on 31 July. You do not need to be self-employed to be eligible for the deferment.’

This means that those who pay tax via PAYE on most of their income, but who need to declare additional earnings outside that employment, or who may receive income from activities such as buy-to-let properties, can defer the self assessment second payment.

The deferment is optional. HMRC advice states: ‘If you are still able to pay your second payment on account on 31 July you should do so.’

ICAEW’s tax faculty suggests that some taxpayers may prefer to make the July payment to avoid a larger payment in January 2021.

Very few taxpayers pay their self assessment liabilities by direct debit because the system requires a separate direct debit mandate to be set up for each individual payment. Any taxpayer that wishes to defer payment and has already set up a direct debit mandate for the payment on account due on 31 July 2020 should cancel it by contacting the bank.

The ICAEW advice points out that self assessment returns should still be filed by their due date and it may be advantageous to file the 2019/20 return as soon as possible after 5 April 2020. This might facilitate planning for the tax payment due in January 2021 and perhaps crystallise any refund due, including as a result of any loss relief available.

The deferral arrangement is an automatic offer with no applications required. No penalties or interest for late payment will be charged for taxpayers who defer payment until 31 January 2021.

However, taxpayers should note that this is a deferral of the payment due and not a cancellation, so they will need to find the money next year.

During the deferral period taxpayers can set up a budget payment plan to help pay the deferred payment on account when it comes due. Those in temporary financial distress because of Covid-19 are advised to consider HMRC’s time to pay scheme.

HMRC guidance, Self assessment payments on account under covid-19