Hefty interest on self-assessors’ 12-month pay plan ‘adds insult to injury’
The only part of the Winter Economy Plan which freelancers were clinging to for income support through covid-19’s resurgence, except for the ‘inadequate’ SEISS extension, comes with a string attached.
In fact, despite experts welcoming the chancellor using his ‘WEP’ to announce a 12-month instalment plan for self-assessors paying their July 2020 tax from January 2021, “he didn’t make it clear that they’d pay for the privilege.”
Sarah Coles, personal finance analyst at advisory Hargreaves Lansdown explains her assessment: “Those [self-employed people] spreading their self-assessment bills will pay interest at 2.6% from the outset."
'Adds insult to injury'
She added: “It adds insult to injury for those who have been struggling with a system that has seemed stacked against them from the start.”
Coles was referring to the very start of the Self-Employed Income Support Scheme being mired in criticism that its small print on eligibility has the effect of excluding millions of bonafide sole traders.
Emily Coltman, chief accountant at FreeAgent, sounds aware that such business soloists could now do without a new respite from HMRC coming with a potentially hefty sting in its tail.
“It’s clearly unfortunate that sole traders who are deferring their income tax bills will be charged interest at this difficult time,” she told FreelanceUK, referring to interest of 2.6% which applies from February 1st.
Yet Coltman points out that thanks to the chancellor, self-employed people were already able to defer July’s 'payment on account' until January, and now they can spread it over 12 months, meaning “they’re getting longer to pay their tax than they otherwise would.”
For his part, when pressed about financial support for taxpayers during the coronavirus crisis, the chancellor has claimed that freelancers get a ‘similar’ level of support from the government than the employed.
'Freelancer treatment not in line'
But according to Taxevo, HMRC customers who have taken advantage of the government’s pandemic-inspired business support loans benefit from absolutely no repayment or interest charges for the 12-month initial period.
“The fact that interest will be charged [for self-assessors] on the tax owed from February 1st 2021 does show that self-employed workers are not being treated in line with [others],” the Winchester-based accountancy firm said yesterday.
However “the position is even worse” (meaning it is more glaringly unequal), for those freelancers who started sole trading from April 2019, as they have been completely ineligible for government support, at odds with employees.
'Time for a rethink'
“Furloughed employees were eligible for support if they were employed at the end of February 2020,” adds the firm’s tax director Marc Seymour, citing their two months of additional cash.
“[Surely] it’s time for a rethink [by the chancellor in terms of his offering to the self-employed], given that we are seeing an increased number of local lockdowns and stricter measures?”
Slightly confusingly for sole traders, the government webpage detailing the 12-month instalment payment plan omits the amount of interest that they may incur – but fortunately, the 2.6% rate does not apply on the deferred payment between July and January.
'No penalties though'
“HMRC do reserve the right to charge them [the self-employed] interest on late payments of tax,” confirmed FreeAgent’s Ms Coltman.
“Though they won’t levy penalties as well.”
To be eligible to pay their bill over the 12-month period, the tax total for freelancers can be up to £30,000, which represents an increase on the maximum £10,000 threshold which the government set initially.
'Don't bury your head in the sand'
“Those with Self-Assessment tax liabilities will be able to spread the burden over a longer period, giving many time to settle their liability while trying to get back on their feet,” reflected Taxevo’s Mr Seymour.
“My advice for those struggling with their tax liabilities is to make contact with HMRC, and don’t bury your head in the sand! Being able to apply through a self-serve online tool for Time to Pay agreements will help –[but] I’m sure we’ve all experienced the long hold times when trying to call HMRC about our tax affairs.”
8th October 2020