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Tax interest charge for the self-employed

Written by: Emma Lunn
Tax payers who use instalment arrangements to pay self-assessment tax bills can now spread debts up to £30,000 – but they will pay interest from February.

Previously the online payment plan service, called Time to Pay, could only be used to set up instalment arrangements for tax bills up to £10,000.

During the crisis, self-employed people who made payments-on-account could put their July 2020 payment off until January 2021. Now they can spread this – and the additional tax due in January – over 12 monthly instalments.

Workers won’t pay any interest on the deferred payment-on-account between July 2020 and January 2021. However, they will have to pay interest at 2.6% on all their outstanding tax from 1 February.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says the announcement is “another kick in the teeth for the self-employed”.

She says: “Self-employed workers have got used to bad news during the crisis, when every government announcement about support has come with caveats that exclude millions. So it’s yet another blow to discover that when the chancellor announced they could spread their self-assessment payments over 12 months, he didn’t make it clear that they’d pay for the privilege.

“All the business support loans are interest-free for the first 12 months, but those spreading their self-assessment bills will pay interest at 2.6% from the outset.

“For those who take advantage of the initiative, it will still make an enormous difference to their ability to keep on top of their tax debts. At this stage, they need all the support they can get. But it adds insult to injury for those who have been struggling with a system that has seemed stacked against them from the start.

“The exclusions around who could receive the self-employment grants have left millions out in the cold – including every single person who started working for themselves after April 2019.”

The increased self-serve Time to Pay limit of £30,000 follows chancellor Rishi Sunak’s announcement on 24 September that there will be increased support for businesses and individuals in the uncertain months ahead.

As part of his speech, Sunak announced that self-assessment tax payers could pay their deferred payment on account bill from July 2020, any outstanding tax owed for 2019 to 2020, and their first payment on account bill for this current tax year in monthly instalments, up to 12 months, via the self-serve tool.

Customers who need longer than 12 months to settle their tax liabilities should contact HMRC in the usual way.

Jesse Norman, financial secretary to the treasury, says: “We are supporting jobs by giving more breathing space to up to 11 million self-assessment taxpayers when managing their tax affairs.

“Enhancing Time to Pay should ease the financial burdens and protect the livelihoods of these taxpayers, as they navigate the months ahead.”

More than 11 million people complete a self-assessment tax return each year.

Once they have completed their tax return for the 2019 to 2020 tax year, those who have payments to make may have the option of using the online self-serve Time to Pay facility to set up a direct debit and pay any tax that is owed in monthly instalments, up to a 12-month period.

HMRC estimates that about 95% of self-assessment tax payers who are due to make payments on 31 January 2021 could qualify to implement a Time to Pay arrangement.

Customers who wish to set up their own self-serve Time to Pay arrangements must meet certain criteria:

  • They need to have no outstanding tax returns, other tax debts or other HMRC payment plans set up
  • The debt needs to be between £32 and £30,000
  • The payment plan needs to be set up no later than 60 days after the due date of a debt

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