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How to Handle a Time To Pay Rejection from HMRC

Some Time to Pay applications to defer tax after the 31 January 2021 deadline are being rejected by HMRC. The following guide outlines the issues and next steps for taxpayers.

time to pay

This January, many taxpayers are facing hefty bills as income tax and VAT deferrals from 2020 combine with usual tax liabilities at the end of January. This has resulted in HMRC’s Time To Pay service is in huge demand this winter.

This combination on 31 January 2021 is made up of the following tax debts:

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

Some taxpayers who are VAT registered may also need to complete deferred VAT payments in the period 20 March to 30 June 2020 by 31 March 2021. However, you can delay these payments even further by using an online deferral system which will be available soon.

Importance note: seek appropriate advice if you plan to postpone your class 2 NIC for 2019/20. If it is not paid by 31 January 2021, the tax year will not count as completed in your NIC record.

Does your tax debt reflect your profits for the tax year?

HMRC is reminding taxpayers to inspect the level of 2020/21 payment that will form part of the 31 January 2021 tax debt. The amount must be reasonable in view of expected profits from this current tax year.

For many businesses, trading volumes decreased in 2020 due to the pandemic, but the trading income for 2020/21 will include COVID-19 grants – three SEISS grants paid so far, for example – alongside any local authority grants.

Automatic online deferral

In anticipation of the large numbers of tax deferrals this January, HMRC created an instalment mechanism to allow individuals to apply for time to pay tax debts.

Those who do so must pay back the tax by direct debit within 12 months, alongside meeting the following conditions:

  • has submitted their 2019/20 self-assessment tax return
  • has no earlier tax returns outstanding   
  • their tax debt must be at least £32 and not exceed £30,000 
  • they have no other tax instalment plans in place.

If the criteria aren’t met, the system will display: “not eligible for an online payment plan.”

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

Manual interventions to process tax returns that include claims for the transferable marriage allowance or entrepreneurs’ relief can delay the process.

How to apply to the self-serve tax deferral

To apply, you will need to log in to your government gateway account with your user ID and password. Tax agents can not log in on your behalf.

You can then choose how many instalments you will need to spread your payments over 2021. Note that the late paid tax will accrue interest at 2.6% until it is paid.

The instalments must be set up no later than 60 days after the due date for the tax, so the agreement must be in place by 31 March, 2021. If a plan hasn’t been agreed by this date and tax debt is still outstanding, an automatic penalty of 5% will be imposed on the outstanding tax.

When to speak with HMRC

If you do receive a ‘no’ to your application, or your total tax debt exceeds £30,000, call the self-assessment payment helpline on 0300 200 3822 to negotiate a reasonable time to pay plan. This service is open from 8am to 6pm on weekdays.

You must have to hand:

  • Your UTR number or NI number
  • Name and address
  • Your telephone number
  • Details of tax payments to be deferred
  • Details of any tax repayments the taxpayer is waiting for.

Count On Cardens

If you would like to discuss the issues and processes outlined above, please get in touch with your usual Cardens contacts or visit our meet the team page to find the right department.

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