The current pandemic has brought a variety of significant changes to our professional and personal lives, but some things remain constant, and unfortunately, taxes are one of those. Now more than ever, people are worried about their finances, and the strain taxes will have on them.
To help businesses and self-employed workers manage their finances and cash flow during this unprecedented time, HMRC is deferring any VAT payments that are due between the 20th of March and the 30th of June 2020. In addition to this, the second self-assessment payment that was due for the 19/20 tax year on the 31st of July can be deferred until January 31st, 2021. No interest or penalties will come from any of these deferrals, which are automatic and with no applications required.
Will there be long term implications from short term financial relief?
It may come as a relief to many that people will have more time to pay their tax bill, and in the short term, it will enable professionals to utilise their cash reserves towards more immediate expenses by reducing the commercial and financial impact of the pandemic.
Self-employed workers and businesses who are in financial distress with outstanding tax bills can also apply for a ‘time to pay’ arrangement, providing a time-limited, pre-agreed deferral period where you can pay back what you owe to HMRC.
Whilst it may be the easy decision to defer your taxes, it may not be the right option as there could be some financial implications by choosing to delay your payment. The financial implications could become more significant in an uncertain business climate, especially if there is a second outbreak of the pandemic.
When deferring your tax bill, you should remember that this payment will become due at the same time as your January self-assessment tax liability, meaning you will have a larger bill than usual. This could bring unpredictable challenges when it comes to cash flow in the new year, which is a time where many businesses thought they could recover from the previously lost momentum.
Deferral isn’t your only option
To avoid the burden of increased costs in the future, you can still choose to pay your tax bill when you would usually. HMRC is encouraging businesses and self-employed workers to help the government by paying their taxes on time, but this may not only support the government but could help you in the long run too.
If you do choose to make the payment on time, you may want to spread the costs over the remaining months of the year to retain working capital in your business.
Some alternative finance providers offer unsecured loan facilities. These will allow you to spread the cost of tax liabilities flexibly, over a certain period like 6 or 12 months. Some specialist lenders are also currently offering an optional deferred repayment period for the first month, which will further ease the burden on your finances.
It is important to have your business accounts that end in the 2019/20 tax year prepared as soon as possible, no matter which option you take so that you have early visibility for your self-assessment tax liability in 2021.
The current world has become increasingly unpredictable, and gaining better predictability over your monthly payments will enable you to navigate through any challenges you are facing now or in the future with peace of mind. Here at Maple Accountancy, we understand any financial difficulties that you may be experiencing and are always here to help. To find out more about how we can help your business during these tough times, visit our website or contact us on 01332 207336 or email@example.com.