Posted on: 17 November 2020

Managing the effects of COVID-19 on your tax bill this January

Coronavirus has created unprecedented challenges, particularly for self-employed people. Tradespeople, beauticians, drivers, hairdressers, and many other self-employed people have been faced with dwindling customers due to lockdown and many have used savings to keep afloat. Savings that otherwise might go towards your tax bill.

Our partners at APARI have put together some useful guidance for the self-employed to make your tax more affordable in the aftermath of COVID-19. Carry on reading to find out how you can work with HMRC when it comes to your tax return.

The guidance below is general advice. For your individual circumstances, check with a professional accountant, or use HMRC-recognised software.

Managing the effects of COVID-19 on your tax

Disclaimer aside, here are APARI’s four top tips on managing your tax this January.

COVID-19 grants don’t need to go on your current tax return.

As a self-employed person, you may have been eligible for a Self-Employed Income Support Scheme (SEISS) grant from the Government. While the grant does count as taxable income, the good news is that you don’t have to include it in your 2019/20 tax return due by 31st January 2021.

You will, however, need to declare it in next year’s Self-Assessment, so keep hold of your claim references and the amount you claimed.

The government has also announced further grants covering November 2020 to April 2021. So, if you are struggling over the Christmas period or with your tax bill, there may be financial support that can help.

For more information, and to apply, visit HMRC’s website.

Ask HMRC to reduce your payment on account

As you may already know, along with paying your tax bill in January, you will also need to make a payment towards your anticipated 2020/21 tax (the current tax year). This is known as a Payment on Account. This is typically 50% of your previous tax bill, with the other half paid in July. For more info, see this short video from APARI.

However, if you have seen work dry up due to coronavirus, it’s fair to assume that your earnings in 2020/21, and your subsequent tax bill, will be much lower. If you are concerned about your ability to pay your tax bill in January, you can always ask HMRC to reduce your payment on account in light of your reduced earnings.

You should put in your request as early as possible to give HMRC enough time to consider and respond before January 31st. You can do this yourself by logging onto your HMRC online account and following the instructions outlined here.

Get more time to pay

So let’s say you’ve applied for your SEISS grants and asked for a reduction to your payment on account, but you are still worried about being able to pay your tax bill come January. What can you do?

Well, fortunately, the government has recently announced that you can spread tax payments over a period of up to 12 months. You may have taken advantage of a similar offer to defer your July 2020 tax payment.

However, this time you will need to agree a payment plan with HMRC as part of their “Time to Pay” scheme. Again, you should get in touch with HMRC as soon as possible. January is a very busy time for them and they may not be able to set up your payment plan in time. HMRC have a section on their website about how you can pay your tax in instalments.

Real-time estimates of your tax liability

We all know that the best way to ensure we have enough savings for our tax bill is to complete our Self-Assessment in April and start saving.

The ideal situation would be to have ongoing tax estimates on a real-time basis. That way you could always ensure you had saved just the right amount, assuming you are keeping up-to-date records of your business income and expenses. Alternatively, it would require more regular interaction with an accountant.

Over the next few years, self-employed people will be expected to transition to digital record-keeping and tax submissions as part of HMRC’s Making Tax Digital (MTD) regulations. To comply with the regulations, you will need to use HMRC-recognised software to keep up-to-date digital records of income and expenditure, and submit a summary to HMRC every 3 months.

While this might sound like a challenging process, software can make it a lot easier. In addition, good MTD software will also provide you with accurate and real-time tax estimates.

For a full list of MTD-compatible, HMRC-recognised software, click here.

About APARI

APARI is a HMRC-approved platform which supports the Making Tax Digital initiative, where businesses can complete their own tax documents without the need for an accountant. APARI’s software uses cutting edge technology and artificial intelligence to enable users to be in control of their finances, especially as we start to make the shift to Making Tax Digital.

Talking of how the COVID-19 pandemic has caused disruptions to businesses, APARI’s UK Marketing Partner, Anish Mehta, commented:

“If the coronavirus pandemic has hit your income and you are worried about your January tax bill, there are things you can do if you act now. The Government and HMRC have offered support for the self-employed, but it is up to you to find the best approach for your personal circumstances.

We can’t stress enough the importance of applying for support as soon as possible. HMRC are likely to find themselves overwhelmed by support requests in January and may not get to your application in time.

Finally, consider voluntarily registering for MTD ahead of time so you can get used to the new software and start getting real-time, accurate tax estimates year-round.”

Business insurance with Premierline

Every business is different and has its own business insurance needs, which is why we work with some of the UK’s most well-known insurers to make sure that you are getting the right insurance cover for your business.

To help you and your business during these unprecedented circumstances, Premierline has taken steps to ensure that we can continue to offer our award-winning service.

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The information and tools contained in this guide are of a general informational nature and should not be relied upon as being suitable for any specific set of circumstances. We have used reasonable endeavours to ensure the accuracy and completeness of the contents but the information and tools do not constitute professional advice and must not be relied upon as such. To the extent permitted by law, we do not accept responsibility for any loss which may arise from reliance on the information or tools in our Insight Hub.