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What to do if you can’t afford to pay your tax bill in January

Due to the Covid pandemic HMRC allowed people who could not afford to pay their second payment on account for 2019/20, due by 31 July 2020, to defer payment until January 2021, when the balancing payment for the year is due. Provided that the July payment is paid in full by 31 January 2021 there will be no penalties or interest charged.

In January 2021 people who deferred their July payment will therefore have to pay the deferred payment, the balancing payment for the year and the first payment on account for the current tax year, 2020/21.

What if I can’t afford to pay?

File your tax return for 2019/20 and contact HMRC before the 31 January 2021 payment deadline.

When filing your return consider what your income is likely to be for the current tax year. If your income has fallen due to the pandemic you could reduce your payments on account for this year. If you have received any coronavirus support payments remember that these are taxable income for the current year.

If you meet the conditions below you can go online and set up a ‘time to pay instalment arrangement’.

The conditions:

  • You owe between £32 and £30,000
  • You don’t have any other debts or payment plans with HMRC
  • Your tax returns are up to date
  • It’s less than 60 days after the payment deadline (31 January in this case)

HMRC advise waiting until at least 48 hours have elapsed after you have filed your tax return so that the system will have registered the tax liability for the year.

If you cannot use the online system or do not meet the conditions you can call HMRC. Be prepared to answer questions on your current financial position, including your income & expenditure, savings, investments and other assets; and to state what steps you are taking to get your tax affairs back on track. HMRC will calculate your monthly disposable income after deducting your expenditure. They will usually expect that 50% of the surplus income will be paid into your time to pay arrangement.

By contacting HMRC and entering into a Time to Pay arrangement before the payment is due (31 January) you will avoid the late penalties that are charged on the amount of the tax remaining unpaid 30 days, 6 months and 12 months after the payment date. HMRC will still impose interest charges between 1 February 2021, the day after the tax was due, until the payment arrives in their account. The interest rate is currently 2.6% per annum. HMRC will consider your income and assets when calculating your payments.

Posted By Denise Baugh

12 January 2021

Tags: HMRC Tax
Denise Baugh
Tax & Trust Executive – Private Wealth & Tax