Clients who struggled during the pandemic may well have tax still outstanding from 2019/20 as they had little or no income from their trade in 2020/21. Where a tax repayment is due for 2020/21 you may assume that the repayment would be off-set against the tax due, and stop any further interest running.
The tax repayment for 2020/21 is generally off-set against the outstanding tax, but the ‘effective date of payment’ for this off-set is defined by FA 2009, Sch 54 para 5 (1), (2) as being the statutory filing date for the later tax return, not the actual date when the return was submitted.
Shirley is a beauty therapist, whose salon was closed for most of 2020/21. She incurred losses for that period even after accounting for the local authority grants received. She owes tax of £2000 for 2019/20.
Shirley has a tax repayment due of £3,000 from 2020/21 as she off-set her trading loss against the temporary employment income she had in that year. She submitted her 2020/21 tax return on 3 June 2021.
The HMRC computer sets the £2,000 debt against the £3,000 overpayment, but charges Shirley interest on the £2,000 debt from 31 January 2021 to 31 January 2022, plus a surcharge on 1 August 2021. Shirley feels this is very unfair.
You can remedy this situation by calling HMRC and asking the operative to apply the concession set out in the HMRC self assessment manual para SAM110220. This allows HMRC to treat the effective date of payment as the date the later tax return was logged as received by HMRC.
For Shirley this should wipe out the interest from 3 June 2021 to 31 January 2022 and also remove the surcharge levied because the debt was apparently still outstanding on 1 August 2021.
If HMRC refuse to operate this concession we can submit an objection to the interest charged, and appeal against the surcharge, both on the basis that there was a reasonable excuse for non-payment – ie the 2020/21 credit was available.
Written by the Tax Advice Network