Self-Assessment Payment Plan & Second Instalment Due

The Self-Assessment Payment Plan is an online scheme set up by HMRC to pay any outstanding tax liabilities in full or to set up an online payment plan to avoid a 5% late payment penalty. The scheme was announced on the 25th January 2021, with the deadline later extended to midnight on the 1st April 2021. The first instalment of self-assessment is usually to be submitted by 31st January (although this was extended in 2021), with the second instalment by 31st July. This second payment deadline relates to when a person chooses to make advance payments towards their bill (known as ‘payments on account’). If this is late then a penalty will be handed out, which can be appealed against if the person has a reasonable excuse.

The scheme is said to have attracted over 117,000 taxpayers to set up a self-serve Time to Pay arrangement online, totalling more than £437 million. The Time to Pay online payment allows taxpayers to set up a payment plan online to help them manage the cost of their tax bill up to £30,000. Taxpayers will be able to pay their tax bill in monthly instalments, up to January 2022.

Due to the ongoing Coronavirus pandemic, the government chose to lengthen the initial deadline period to midnight on the 1st April so that taxpayers avoid the 5% late payment charge for filing their 2019/2020 financial documents. Taxpayers who cannot afford to pay their tax bill on time can apply online to spread their payments over a 12-month time scale, however this is subject to filing their 2019/2020 tax returns.

What is the Self-Assessment Payment Plan?

The HMRC Self-Assessment Payment Plan is a government online portal designed for taxpayers to pay their tax bill for the financial year. Once setup, taxpayers have the option to pay online, by post or via their bank in a time period that suits them over 12 months.

After the deadline passed to set up the Self-Assessment Payment Plan on midnight of the 1st April 2021, taxpayers will incur:

  • A 5% late payment penalty will be charged if tax remains outstanding (Further late payment penalties are charged at 6 and 12 months on tax outstanding where a payment plan has not been set up).
  • An additional interest charge on late payment. The current rate of late payment interest is 2.6%.

If Self-Assessment taxpayers know their 2020/2021 tax bill is going to be significantly lower than their 2019/2020 tax bill (e.g. loss of earnings due to COVID-19) they can choose to reduce their payments.

Who does the Self-Assessment Payment Plan affect?

Basically, the Self-Assessment Payment Plan affects all taxpayers. HMRC wanted to support people who cannot afford to pay their tax bill in full by January 2021, by enabling them to pay in instalments. The budget payment plan allows taxpayers to decide how much to pay each week or month as well as the ability to stop payments for up to 6 months.

The recent expansion to the Self-Assessment online service allows these payments to be arranged without the need for initial contact with HMRC staff first or to provide details of current income and expenditure.

For a large number of people, especially those who are considered self-employed, their Self-Assessment tax filings will consist of the balancing payment for the 2019/20 tax year as well as the first payment on account for the 2020/21 tax year. Once your payment plan is set up, you will be notified of how much to pay and over what time period.

Why have the government introduced the Self-Assessment Payment Plan scheme?

The government introduced and then extended the Self-Assessment Payment Plan to combat the growing number of concerns involved in not being able to file tax returns in time due to the pandemic.

Normally, late filing penalties are applied to all returns filed after the 31st January deadline. Those penalties are cancelled if the customer has a reasonable excuse for filing late. However, this year HMRC have chosen to not issue the 5% late filing penalties (plus the interest rate charge) for anyone who set up their Self-Assessment Payment Plan before the 1st April 2021 deadline.

HMRC’s Chief Executive, Jim Harra, stated, “We want to encourage as many people as possible to file their return on time, so we can calculate their tax bill and help them if they can’t pay it straight away. We recognise the immense pressure that many people are facing in these unprecedented times and it has become increasingly clear that some people will not be able to file their return by 31st January. We can reasonably assume most of these people will have a valid reason for filing late, caused by the pandemic.”

Karl Khan, HMRC’s Interim Director General for Customer Services, also said, “We know the past year has been tough for many businesses and self-employed people, which is why we’re helping them spread the cost of their tax bill into monthly payments. Self-Assessment customers can use the self-serve Time to Pay facility for amounts up to £30,000.”

How can I comply with the Self-Assessment Payment Plan?

All information on how to apply for the Self-Assessment Payment Plan and paying your tax bills in instalments can be found at the dedicated government portal page.

We hope this outlined to you exactly what the Self-Assessment Payment scheme is and how you or your business will be affected by it. If you require any more information on any government COVID-19 loans, schemes and grants, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.