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Self-Assessment and Covid

21st January, 2021

As we arrive once again at personal tax return time, many may be questioning the purpose of submitting tax returns for what has been an incredibly topsy turvy period. However, our view is that it is probably more imperative than ever to ensure you complete and submit your self-assessment tax return on time this January and here’s why.

Firstly, it is worth remembering that the tax return due by 31st January 2021, actually covers the period to 5th April 2020 and so only a very small portion of that particular tax year will have been impacted by Covid. The tax return due 12 months from now will be the one which covers the majority of the crisis and is therefore likely to be more reflective of any impact on your personal income and expenditure.

Secondly, whilst HMRC has not removed the need for individuals to submit a self-assessment tax return by 31st January, as normal, there have been a number of announcements in the past 9 months around penalties and payments relating to this particular tax return. So, getting your self-assessment tax return submitted now will ensure you can make maximum benefit of those measures, which we have outlined below.

The measures announced by HMRC in relation to self-assessment and the impact of Covid are:

Daily late filing penalties will not be charged in relation to late 2018/19 tax returns.

These penalties likely would have accrued at the height of the initial lockdown when you may not have had access to all of your papers or been able to get the information needed from third parties.

Six-month and 12-month penalties will be issued as normal, as will the £100 late filing penalty. However, if you believe that you have a reasonable excuse for failing to file your 2018/19 tax return on time, you can appeal these penalties.

Deferment of the second payment on account for the 2019/20 tax year

In March 2020, HMRC announced that the second self-assessment payment on account for the 2019/20 tax year was ‘deferred’ from 31 July 2020 to 31 January 2021. The ‘deferment’ applies automatically without the need to make an application.

These amounts, which may not have been paid in July 2020 will fall due by the end of this month. However, whilst these amounts cannot be deferred further, you can;

Apply to HMRC for time to pay

If you believe that you will be unable to make the full payment due on 31 January 2021, then you should consider a time to pay arrangement with HMRC.

In September 2020, the Chancellor announced that individuals who have a personal tax liability due by 31st January 20201 of up to £30,000 can use a self-service time to pay facility in order to agree a plan with HMRC to spread their payment over 12 months. Those with liabilities of more than £30,000 can also access time to pay to spread their payments, but they must contact a dedicated coronavirus time to pay helpline.

Payments due by 31st January 2021

With the deferred second payment on account from July 2020, the full year’s tax return to 5th April 2020 and potentially a first payment on account for the 20/21 tax year all falling due, you may find you have a significant payment to make by the end of January 2021.

With this in mind we are strongly urging clients to get their tax return information to us as early as possible so we can:

  • Run the calculations and give you as much advance notice as possible of the amount payable.
  • Consider whether we can make a claim to reduce your payment on account for 20/21 if your income is likely to decrease during the current tax year.
  • Discuss the options for settling your tax liability and making an application for time to pay, where relevant.