In 2020, the government took unprecedented steps to support businesses affected by the coronavirus pandemic.
Thanks to government support funding including furlough payments, business interruption loans, ‘bounce back’ loans and other grants, it is possible that some of your clients may have cash in the bank as we enter 2021.
On the face of it, this may seem like a great position to be in. However, it’s worth reminding clients that they need to be mindful of the liabilities that they have ahead of them as things return to normal in 2021. Here are seven financial liabilities your clients need to remember.
If your clients deferred their VAT liabilities between 20 March and 30 June 2020 and still have payments to make, they have three choices:
- Pay the deferred VAT in full on or before 31 March 2021
- Opt into the VAT deferral new payment scheme when it launches in early 2021. Instead of paying their full VAT bill by 31 March 2021, a business can make between two and 11 smaller, interest-free payments by the end of March 2022
- Contact HMRC if they need more help to pay.
2. Corporation Tax, PAYE and National Insurance payments
If a client delayed their Corporation Tax, PAYE and NI payments, they must contact HMRC to arrange a Time to Pay arrangement.
This is because HMRC have not automatically allowed the deferral of these liabilities. Interest will be charged on these deferrals.
3. Accounts filing deadlines
If your client’s business accounts are due in the period 27 June 2020 to 5 April 2021, Companies House have automatically extended all accounts filing deadlines by three months.
However, the Corporation Tax payment deadline has not been extended. Payment is still due at the beginning of month ten of your annual cycle.
4. Rent and rates
Your clients may have received a rent or rates holiday for their business premises. They need to remember that they will still have to make these payments, and so should speak to their landlords to negotiate repayment terms.
5. Self-employed tax liabilities
Clients had the option to defer their second payment on account in 2020 if:
- They were registered in the UK for Self-Assessment
- They found it difficult to make that payment by 31 July 2020 due to the impact of coronavirus.
Clients can still pay their deferred July 2020 payment on account any time up to 31 January 2021. There will be no interest or penalty provided they pay in full by that date.
If your client can’t pay in full by 31 January 2021, they can pay their tax in instalments over a period of up to 12 months to 31 January 2022, once they have filed their 2019/20 tax return.
If they owe up to £30,000, they can set up a Time to Pay instalment arrangement online, and there’s no need to contact HMRC. Note that interest is payable on Time to Pay instalments.
If a client’s personal tax liability is more than £30,000, they will have to negotiate a Time to Pay arrangement with HMRC in the normal way.
6. Business interruption and bounce back loans
If your client used the Coronavirus Business Interruption Loan Scheme (CBILS) or the ‘bounce back’ loan scheme, then it’s likely their repayments will begin in 2021. Therefore, they need to ensure they have the cash available to meet these repayments.
- CBILS – while the government covers all interest payable to the lender for the first 12 months from the date when the original loan was drawn down, the borrower will then need to make full repayments (the loan and any interest) up to the end of the six-year term, as per their arrangement with the lender.
- Bounce back loan – again, the government covers all interest payable to the lender for the first twelve months from the date when the original loan was drawn down. Then, the borrower needs to make repayments over a period of up to ten years (extended from the original six years) with interest charged at 2.5%. Clients can repay at any time without paying a fee. Additionally, clients can now take one payment holiday of up to six months, and/or three interest-only periods of up to six months. They will end up paying more in interest overall if they use one of these options.
7. IR35 reforms coming in April 2021
Another consequence of coronavirus is that the government delayed changes to IR35 ‘off payroll working’ rules. These rules will now come into force during April 2021 instead.
The changes will mean every medium and large private sector business in the UK will become responsible for setting the tax status of any contracted worker. In simple terms, self-employed people working for a company will likely pay more tax.
The government have confirmed these reforms will go ahead in April 2021, so your clients need to be aware of the implications.
Get in touch
If your clients need help with managing their finances through this difficult time, or you have clients that would benefit from advice, please get in touch. Email firstname.lastname@example.org or call 01454 416 653.