Record number of self-employed defer tax payments 

Pandemic sees 6 times more self-employed people defer their tax payments, new data has revealed 

The number of self-employed people and businesses that have rescheduled their tax payments using the government’s Time to Pay scheme is six times higher than after the global financial crisis in 2010, new data shows.

Analysis by the international law firm, Pinsent Masons, of HMRC’s figures, found that as of 31 March 2021, 854,000 taxpayers took up Time to Pay arrangements – an increase from 647,770, which equates to 38 per cent, from a year ago.

The number is more than six times higher than the 139,300 taxpayers who used Time to Pay arrangements in the year after the global financial crisis in 2010. 

Additional outstanding tax due more than doubled since last year

Time to Pay allows self-employed individuals and businesses to delay the repayment of any overdue tax bills. It usually involves staggering the payments over a 12-month period.

In some cases, people can apply to use the scheme online, but for those with higher debts or businesses that want to split the repayments over a longer time period, they must reach out to HMRC and provide extensive evidence.

According to the analysis, there is also an estimated additional £117 billion in overdue tax that has been added to HMRC’s outstanding debts system for 2020/21. 

This is yet to be covered by any Time to Pay arrangements and is more than double the £52 billion in outstanding tax from the previous year.

Unsurprisingly, Pinsent Masons attributed the spike in delaying tax payments to the Covid pandemic.

HMRC’s lenient approach will ‘inevitably taper off’

It stated that many self-employed people have struggled because of the numerous lockdowns, which forced businesses to temporarily close or work within a limited capacity. It also created uncertainty, which resulted in projects being put on hold.

Sam Wardleworth, Associate at Pinsent Masons, said: “The figures show that hundreds of thousands of additional taxpayers have sought a Time to Pay arrangement. Undoubtedly, Covid-related disruption has increased pressure on paying tax bills and taxpayers are making the most of HMRC’s flexibility in this area.”

Wardleworth highlighted that while HMRC has been more flexible over rescheduling tax debits during the pandemic, people shouldn’t assume this will be the case going forward and should get in touch with the taxman as soon as possible and before they start incurring penalties.

Taxpayers warned of enforcement action if they fail to pay

He added: “For most taxpayers, difficulties in agreeing a Time to Pay arrangement typically arise when they fail to approach HMRC quickly enough or the tax debt is of a higher value. 

“[…] HMRC’s more lenient approach will inevitably taper off once the economy starts to show signs of recovery from the impact of Covid.”

A Time to Pay arrangement can be beneficial for both HMRC and the individual – the tax watchdog gets a higher percentage of tax owed plus interest compared to an insolvency process while the person can pay their bill in more affordable installments.

However, Pinsent Masons warned that HMRC can take enforcement action in cases where tax bills are not paid on time or a Time to Pay arrangement has not been settled.

High numbers due to taxman encouraging engagement

This could include using third-party debt collection agencies and seizing and selling a taxpayer’s assets to pay the debt.

Responding to the figures, Margaret Curran, Technical Officer at the Chartered Institute of Taxation (CIOT), agreed that high numbers are likely to be because of the “financial pressure” caused by the pandemic.

But she said: “The high numbers might also be explained by the fact that during the crisis HMRC have been actively encouraging people to engage with them if they are having difficulty paying what they owe. 

“[…] We encourage people to engage with HMRC to discuss their situation and hopefully come to an arrangement with them to pay what they owe. 

“We encourage people to discuss their situation with their accountant or tax adviser (if they have one) who can advise them on the best course of action, including helping them to engage with HMRC to discuss sorting out a Time to Pay arrangement.”