Managing a ‘Time to Pay’ HMRC Rejection

Some taxpayers and advisers using the online service to defer tax due 31 Jan are being rejected, what can you do to handle this issue if you are affected?

Many taxpayers are facing a bottleneck of tax debts due this quarter, including income tax and VAT automatically deferred from 2020. Total tax payable by an individual taxpayer by 31 January comprises these debts:

• balancing income tax payment for 2019/20
• 2nd income tax payment on account for 2019/20 – deferred from July 2020
• 1st income tax payment on account 2020/21 – half of total 2019/20 liability
• any capital gains tax for 2019/20
• classes 2 and 4 NIC for 2019/20.

VAT registered taxpayers may have VAT liabilities deferred from payment (20 March to 30 June 2020), which now need to be paid by 31 March 2021. This VAT debt can be delayed further using another online deferral system, open in the next few weeks.

Automatic online deferral – applying online

HMRC anticipated a large number of taxpayers would need to defer tax due in January, and so created an instalment mechanism to allow individual taxpayers to apply for ‘time to pay’ the tax debts now coming due. Using this link, taxpayers agree to pay tax monthly by direct debit, with a target to clear debt within 12 months. The taxpayer must meet these conditions to qualify:

• submit their 2019/20 self-assessment tax return
• no earlier tax returns outstanding
• tax debt £32 – £30,000
• no other tax instalment plans in place

If any of these conditions not met and the system says ‘not eligible’ for the online payment plan.

What if you think you do fit all of the above and you are still rejected?

One potential problem could be, HMRC has your 2019/20 SA tax return, but has not processed it yet, tax liability for the year hasn’t yet fed into taxpayer’s personal tax account. It can take 72 hours after an SA return is submitted.

There have also been problems with HMRC having to use manual intervention to process some tax returns in the case of claims for the transferable marriage allowance or entrepreneurs’ relief. Manual intervention slows up processing.

How to apply if you haven’t already

For self-serve tax deferral, the taxpayer needs to log in to their Government Gateway, (user ID and password). User ID can be set up as part of the application process. Tax agents cannot use the automated system on behalf of their clients.

The taxpayer can choose how many instalments to spread their tax bill over in 2021, however, all the late paid tax will accrue interest at 2.6%, until paid.

The instalment plan must be set up no later than 60 days after the tax due date – the time to pay agreement must be in place by 31 March. If the 2019/20 tax debt is still outstanding at 31 March 2021, and no payment plan is agreed, an automatic penalty will be imposed at 5% of outstanding tax.

Speak to HMRC if your application doesn’t work

Where the self-serve tax deferral system says ‘no’, the taxpayer or tax agent, can call the self-assessment payment helpline – 0300 200 3822. You can negotiate a reasonable time to pay plan, 8am to 6pm, weekdays. This helpline should always be used if the total tax debt exceeds £30,000.

Before calling HMRC you need:

• taxpayer UTR number or NI number
• taxpayer name and address
• a contact telephone number
• details of tax payment to be deferred
• details of tax repayments the taxpayer is waiting for

Check plan details against forecasted profits

HMRC is reminding taxpayers to examine the level of payment on account for 2020/21, (that bit which forms part of the 31 January 2021 tax debt), to check is it realistic in view of the expected profits for the current tax year?

Note that although trading volumes in 2020 were reduced for many, due to Covid-19, 2020/21 trading income will include 3 SEISS grants paid so far, and any local authority business grants received.

NIC issues

Be careful when postponing class 2 NIC due for 2019/20, – if not paid by 31 January 2021, the tax year will not count as ‘completed’ in the taxpayer’s NIC record.

For any tax enquiries, you can call our Tax Team at LHP on 01267237534 or email carmarthen@lhp.co.uk.