While last week’s Budget saw little help for Limited Company Directors, the government have made a number of adjustments to VAT and Self-Assessment payments that could help limited company contractors manage their cash flow at this critical time. Despite the concessions being announced last month, awareness remains low, particularly around the ‘time to pay’ facility that can help limited company contractors spread the cost of their tax bill. Contractors who can pay on time are advised to do so, however the following concessions could give limited company contractors who are struggling in the current climate some breathing space:
Time to Pay Facility Helps Spread Cost of Self-Assessment Tax Bill
The online Time to Pay facility allows contractors to spread the cost of their Self-Assessment tax bill into monthly instalments until January 2022.
If you need help, you should contact your accountant to discuss setting up a payment plan. In most instances, you will need to produce your repayment offer and case in writing, along with copies of a cash flow. You will need to put forward your case explaining why you are unable to pay the amount owed, and how much you are able to offer as a monthly payment. A Time to Pay (TTP) arrangement is set for a defined period, but each case is judged on its own merits so the length of time varies.
Late payment penalties for Self-Assessment have also been waived until 1 April. Self-Assessment contractors will not be charged a 5% late payment penalty if they pay their tax or set up a payment plan by 1 April.
The payment deadline for Self-Assessment is 31 January and interest is charged from 1 February on any amounts outstanding. Normally, a 5% late payment penalty is also charged on any unpaid tax that is still outstanding on 3 March. But this year, because of the impact of the COVID-19 pandemic, HMRC is giving workers more time to pay or set up a payment plan.
Contractors can pay their tax bill or set up a monthly payment plan online at GOV.UK. They need to do this by midnight on 1 April to prevent being charged a late payment penalty.
Online service opens for VAT deferral scheme
Over half a million businesses who deferred VAT payments last year can now join the new online VAT Deferral New Payment Scheme to pay it in smaller monthly instalments.
In order to take advantage of the new payment scheme, businesses will need to have deferred VAT payments between March and June 2020, under the VAT Payment Deferral Scheme. They will now be given the option to pay their deferred VAT in equal consecutive monthly instalments from March 2021.
Businesses will need to opt-in to the VAT Deferral New Payment Scheme. They can do this via the online service that opens on 23 February and closes on 21 June 2021.
If you’re a limited company contractor make sure you’re prepared for the impending IR35 reform. From April 2021 it will be the end-client who will determine whether or not the contract is inside or outside IR35. This has already seen many end clients make risk averse decisions to ban limited companies or switch contracts ‘outside’ IR53 to ‘inside’ in April. ContractingWise can assist those who are still unsure of their options to keeping their contracting career on track. To talk to a member of our team, call: 0203 642 8679.