Managing tax debt from the pandemic
The amount of tax owed to HMRC during the COVID-19 pandemic has almost tripled from pre-pandemic levels. A total of £42 billion was owed to HMRC at the end of September 2021 according to a recent National Audit Office report. This compares to £16 billion in January 2020.
This debt has largely been a result of the economic impact of the pandemic on taxpayers and the switch by HMRC from a focus on debt collection to a support role, including the various schemes and grants introduced. There has also been fraud identified under the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS).
When the country went into lockdown in March 2020, HMRC adapted and tailored its approach to the issues faced from the pandemic. This included:
- Launching a Coronavirus helpline to provide taxpayers with advice.
- Reallocating staff to assist with CJRS and SEISS applications and the administration of the schemes.
- Extending access to online repayment tools for larger debts and VAT payments.
- Agreeing longer Time to Pay arrangements (including over a year) on a case-by-case basis, acknowledging it may be unrealistic for taxpayers to clear their debts under normal timescales.
- Setting up a taskforce to pursue faulty and fraudulent claims under the COVID-19 support schemes.
- Developing a process to identify companies at high risk of insolvency and tailoring taxpayer communications accordingly.
In the short term HMRC have advised they will strike a balance between pursuing debt and giving taxpayers time to financially recover. However, as the economy starts to recover from the pandemic, they will return to focus on debt collection. If a tax payment is missed and a repayment plan cannot be agreed, HMRC may request for the amount to be paid in full. They also advise that they will consider commencing insolvency proceedings where a customer does not engage with them regarding a tax debt or continues to build up unpaid tax with no viable plan for repaying the amount due.
Time to Pay
A Time to Pay arrangement is where HMRC formally agrees for repayments to be made in monthly instalments.
There is currently no limit on how long a Time to Pay arrangement could last and the length agreed by HMRC depends on the amount owed and the taxpayer’s affordability. If circumstances change, HMRC will consider Time to Pay arrangements being extended or shortened, subject to its agreement.
A Time to Pay arrangement cannot be set up if HMRC do not believe a repayment plan will be adhered to. For example, where taxes have in the past been left unpaid.
Remember to declare COVID-19 grants on your tax return!
Any COVID-19 grant payments are taxable, and you should declare them on your 2020-2021 Self Assessment tax return before the deadline on 31 January 2022. You need to report grants and payments from the following COVID-19 support schemes:
- Self-Employment Income Support Scheme (SEISS)
- Test and trace or self-isolation payments
- Coronavirus Job Retention Scheme (CJRS)
- Eat Out to Help Out
- Coronavirus Statutory Sick Pay Rebate
- Coronavirus Business Support Grants
The Self Employed Income Support Scheme application and payment windows during the 2020 to 2021 tax year were:
- SEISS 1: 13 May 2020 to 13 July 2020
- SEISS 2: 17 August 2020 to 19 October 2020
- SEISS 3: 29 November 2020 to 29 January 2021