⚠️ We are working hard to ensure this guidance is up to date. However, you should bear in mind that things may change as the government respond to the ongoing situation.
Coronavirus: Further self-employment considerations
The coronavirus outbreak is having far-reaching financial impacts on individuals and businesses across the UK, and indeed across the world. You may be worried about the impact on your self-employment. This page answers some of the questions you may have about paying tax and other considerations.
What if I currently owe tax?
There is additional support for businesses and self-employed individuals who have tax payments due but are suffering cash flow difficulties – for example, you owe tax under Self Assessment, or you have VAT or PAYE payments due. HMRC have set up a dedicated coronavirus helpline (0800 024 1222), and are urging anyone worried about forthcoming payments to call them to discuss the options available, which will include considering a bespoke Time to Pay arrangement so that amounts can be paid off over a period of time, and possible suspension of any ongoing debt recovery action.
HMRC’s helpline is currently staffed between 8am and 4pm, Monday to Friday. We understand that the line is very busy and so there can be a significant waiting time before calls are answered.
Measures have also been introduced to help ease cash flow pressures for small businesses, including those who are self-employed. These are summarised below:
a) VAT registered businesses
Any VAT payments due between 20 March 2020 and 30 June 2020 were automatically deferred. Payment could be made at any time up to 31 March 2021 without incurring interest or penalties. However, if you are unable to pay the deferred VAT you can opt to pay it in instalments during the period April 2021 to March 2022 by joining the VAT Deferral New Payment Scheme. You can join any time up to 21 June 2021. The sooner you join, the larger the maximum number of instalments will be. Your VAT returns must be up to date to be able to join the scheme and you will need to know how much VAT you owe. This will be the amount of VAT that was automatically deferred, less any payments made so far. The scheme requires you to pay the instalments by Direct Debit. Full details of the scheme, including the online tool to set up the instalment arrangement, are available on GOV.UK.
If you cannot join the deferral scheme online, then you should call HMRC’s coronavirus helpline (0800 024 1222) by 30 June 2021 to set up the instalment plan by phone.
Further details about paying VAT are on GOV.UK.
VAT returns due for submission during this period were still due as normal and so should have been completed and filed on time wherever possible. If you were unable to do so due to sickness, staff shortages, etc., then you should complete and file the return as soon as possible after the due date and keep a record of what caused the delay. This should ensure you have information that can be used for an appeal against late filing penalties, should any be charged in due course.
b) Individuals with Self Assessmenttax payments due
1. On 31 July 2020:
The second payment on account in respect of the 2020/21 tax year, normally due for payment on 31 July 2020, could be deferred until 31 January 2021 if you had been affected by the coronavirus outbreak (for example, your self-employment business had to temporarily close, or your business income has substantially reduced even if you continued trading). This meant there would be a larger tax payment due on 31 January 2021 than usual (this is explained in the example Callum at: How are my tax payments affected by the coronavirus outbreak?).
2. On 31 January 2021
⚠️ Note: HMRC announced on 25 January 2021 that they would not charge late-filing penalties for 2019/20 tax returns submitted online on or before 28 February 2021. However, the legal deadline for the payment of any unpaid tax for that year, as well as the first payment on account for 2020/21 if applicable, remained 31 January 2021.
For those in Self Assessment, the tax payments due on 31 January 2021 were:
- your balancing payment for 2019/20;
- your first payment on account for 2020/21 (if applicable); and
- your second payment on account for 2019/20, if deferred from 31 July 2020 (see above)
If you were not able to pay the full amount due by this date, you may have been able to set up a Time to Pay arrangement to spread the payment over a period of up to 12 months by using an online tool on GOV.UK. A Time to Pay arrangement can only be arranged online within 60 days of the payment deadline. We understand that this means it is no longer possible to use the online service for amounts which were due on 31 January 2021, though we are waiting for confirmation from HMRC on the point.
If you cannot use the online tool, but you still have amounts outstanding which were due on 31 January 2021 and you wish to set up an instalment arrangement, then you will need to contact HMRC instead.
If you want to set up a Time to Pay arrangement that goes beyond July 2021, then HMRC will also expect you to include any second payment on account for 2020/21, which is due for payment on 31 July 2021, in the total amount to which the arrangement applies.
It is important to note that arranging an instalment plan with HMRC to settle the amount due on 31 January 2021 does not avoid incurring interest charges. Interest (currently at a rate of 2.6% per annum) will still be charged from 1 February 2021 on amounts unpaid by 31 January 2021 until payment is received.
However, late payment penalties should be avoided if an instalment plan is in place prior to the penalty becoming due. HMRC has announced that the 30-day late payment penalty which would usually have applied for any 2019/20 tax which was still outstanding on 3 March 2021 will be waived provided that the tax was paid, or a payment plan arranged for the full amount, on or before 1 April 2021.
If you are self-employed and your Time to pay arrangement includes Class 2 National Insurance contributions, note that this may affect your eligibility for certain contributory benefits.
⚠️ Top Tip
Don’t forget that you may be able to reduce the level of your payments on account for the 2020/21 tax year if your taxable profits for 2020/21 (which will include taxable coronavirus support payments received in 2020/21 such as the Self-Employment Income Support Scheme grants) are likely to be less than for the 2019/20 tax year. If so, you should make the claim to reduce the payments on account before setting up a payment plan. If you submit your 2020/21 tax return before 31 July 2021,the 2020/21 payments on account will be adjusted automatically once the 2020/21 tax return is processed.
Construction Industry Scheme (CIS)
If you have had tax deducted under the CIS and think you have overpaid tax for 2020/21 after considering any tax allowances such as the personal allowance or the trading allowance, then you may be due a repayment. However, you should bear in mind that some coronavirus support payments received in 2020/21, such as the Self-Employment Income Support Scheme grants, will need to be included on your 2020/21 tax return as taxable income. This could mean that your refund is lower than you might be expecting, or that you are not due a refund at all.
If you are due a refund, you can apply for it now for the 2020/21 tax year. To do this you should get your business records in order and complete and file your 2020/21 Self Assessment tax return as soon as possible to speed up the repayment of your overpaid tax. You may have used a tax refund agent to help with this previously but if your tax affairs are simple you should be able to complete your own tax return and save yourself some money. The quickest way would be to register to complete your tax return online instead of using a paper tax return and you should do this as soon as possible as it can take a few weeks to receive your log-in details. Our self-employment section explains how to register if you are new to self-employment, how to register to use HMRC online services and provides information on how to prepare your business accounts and tax return.
Budget Payment Plan (BPP)
You may have been paying in advance towards your tax and National Insurance contributions through a BPP, by making regular weekly or monthly payments to HMRC. If so, and you think that you have may now have overpaid for similar reasons as explained above, contact HMRC and ask for the BPP to stop or even request a refund.
Class 2 National Insurance contributions
Depending on earnings, the self-employed pay two types of National Insurance contributions (NIC), Class 2 and Class 4, these are explained in more detail on our page: What National Insurance do I pay if I am self-employed?.
Payments of Class 2 NIC go towards your entitlement to certain benefits such as the new-style Employment Support Allowance (ESA), recently introduced to support the self-employed during the coronavirus. This is explained further on our page: Self-employed: illness or self-isolation.
Payments of Class 2 NIC may also be relevant for certain other benefits, such as Maternity Allowance. Your claim to these benefits may be affected if your eligibility relies on having paid Class 2 NIC for a certain tax year but you have not settled this with HMRC by the time you make your claim. See our news article Self-employed with an HMRC payment plan? Watch out if you claim certain benefits for more information.
During the current situation many self-employed will be experiencing significant loss of income and may consider stopping trading altogether and notifying HMRC so that they are no longer liable for Class 2 NIC (£3.05 per week for the 2020/21 tax year). As Class 2 NIC is usually paid by 31 January after the tax year, so for the 2020/21 tax year it is due by 31 January 2022, you may want to consider all the implications before stopping paying your Class 2 NIC if you are suffering from a business interruption rather than a complete cessation of trading.
Other things to consider: trading losses and bad debts
Like many businesses you may be experiencing trading losses during this time, if this is the case then you may want to consider the following points:
- Keep records of any additional business costs during this time, including expenses you would not usually incur but due to the coronavirus have been necessary for the running of your business, for example higher delivery costs for stock.
- Look at the position for the whole accounting year as it may be that although you have made significant losses recently, overall for the accounting year you have made a smaller profit.
- If you have made an overall loss for the whole tax year then it is recommended that you complete and submit your Self Assessment tax return for the 2020/21 tax year as soon as possible. There is guidance in our self-employment section which you may find useful including a page explaining the different types of loss relief available depending on your circumstances.
- If you have made losses in 2020/21 or you are concerned that you might make losses in the current tax year (2021/22) then you may want to keep business records to prepare your accounts using the accruals basis rather than the cash basis. This is because there are more loss reliefs available if you use the accruals basis, including using the loss against current tax year income or carrying it back to the previous tax year which may generate tax refunds. This may have a cashflow advantage, but you may lose the benefit of your personal allowance. This is explained in more detail on our page: What if I make a loss?.
- The quickest way to receive a repayment of tax through loss relief would be to register to complete your tax return online instead of using a paper tax return and you should do this as soon as possible as it can take a few weeks to receive your log-in details. Our self-employment section explains how to register if you are new to self-employment, how to register to use HMRC online services and provides information on how to prepare your business accounts and tax return.
You may have experienced an increase in customers not paying you or are concerned that they will be unable to pay what they owe you in the future – these are called bad debts. How these are treated for tax will depend on whether you prepare your accounts for your tax return using the cash basis or the accruals basis.
- Cash basis: as you only account for sales income when you receive payment then you will automatically be receiving tax relief and will not need to make any adjustments to your tax return for any bad debts.
- Accruals basis: as you will have accounted for the income when the sales transaction occurred you will need to make an adjustment in your accounts for any bad debts. This means you will have an expense for the bad debt which will reduce your profit for the income you will no longer receive, this is illustrated below:
Olivia supplies cafés with baking products and is owed £500 from one business which completely stops trading and cannot afford to pay any of the money they owe her. As Olivia prepares her accounts using the accruals basis, she would have included £500 in her total sales income and so as part of her accounts she will have an additional expense of £500 as a bad debt.
You can only receive tax relief on specific bad debts, such as a particular customer who has ceased trading or informed you they cannot pay your invoice. You can claim bad debt relief in this way whenever it becomes clear that you will not be paid. This could be in the same accounting period as the invoice was raised or it could be in a later accounting period.
If you claim bad debt relief for a particular invoice as you do not expect to be paid, but then you do receive payment from the client or customer sometime later, the invoice will need to be brought back into your accounts as income in the accounting period in which you receive the payment. If you only receive partial payment of the amount owed, then only a sum equal to the payment received will need to be brought into your accounts as income.
There is no tax relief for a general bad debt expense, for example you estimate that a quarter of your customers who owe you money (your debtors) will be unable to pay – you cannot include a bad debt expense on your tax return for 25% of your debtors.
As with all tax matters, we suggest you keep information where possible about how the coronavirus is affecting your business. You may not get paid for work that you have already completed (see our information on the tax treatment of bad debts if you use the accruals basis) or if you are ill and struggle to complete and submit a tax return on time, you might be able to argue you have a reasonable excuse or that there are special circumstances to be considered if HMRC seek to charge you a penalty. It is therefore helpful to have evidence to support an appeal against such a penalty.
Other government support for the self-employed
There are details of financial support for businesses on GOV.UK. Some councils and local authorities are providing grants to support affected businesses, you can check with your local council to see if you are eligible for any additional support.
In England, there are also some grants available if your business must close because of local restrictions or lockdowns. There are more details on these grants on GOV.UK.
Help if you live in Northern Ireland, Scotland or Wales
We have provided some information specific to businesses in Northern Ireland, Scotland and Wales on a separate page.
Help with benefits
Please follow the links from our Coronavirus guidance contents page to find out what you may be able to claim and how your existing benefits may be affected.