No income during COVID, how to pay Self Assessment Tax in Jan 2021

soapbox

My son works as a self employed musician and is also contracted to a company providing equipment and services in the entertainment industry.  All work came to a grinding halt in March with lockdown and doesn't look like coming back anytime soon. He did manage some days/week work undertaking web design and setup for the company he contracts to but that has now been completed. He was also in receipt of the SEISS grants - not very big payments as the first 2 years (of the 3 years covered by SEISS) income was very low. He's currently investigating Universal Credit while looking for other employment.  This summer he was allowed to miss paying his Self Assessment Tax bill (due to Covid) but there is a concern as to what might happen in Jan 2021 when this missed payment and his tax for 2019-20 become due.  With no/little income due to the Covid lockdown in his work, how will he be able to settle his tax debts ?  Will HMRC offer some form of deferred payment scheme ?  Thanks

Grumpy_chap

He may be able to get BBLS.

jon81uk

This might sound obvious, but if the tax was for 2019-20 then that tax year ended at the end of March so the income the tax is due on had already been received? Therefore a percentage of that income should have been put aside for the tax bill, similar to if it was PAYE?

I know with no income now why he would have spent down any savings, but there are only two certainties in life, death and taxes, so keeping the money aside for taxes would have made sense to me.

Jeremy535897

There is a concern that if the July 2020 payment is not made by 31 January 2021, interest may run from 31 July 2020. If he is likely to make a loss in 2020/21, read this (it is looking at a loss in 2019/20, but at present nothing has changed for 2020/21):
https://www.gov.uk/government/publications/losses-hs227-self-assessment-helpsheet/hs227-losses-2020

Beeboo23

Does he save for tax as he goes along? Or did he have to use that money during COVID? Do HMRC charge interest on late tax? Maybe a loan to cover the tax liabilities if he hasn’t put any of his income aside. 

Mrs_Ryan

Ring HMRC and speak to the Debt Management department. He should be able to negotiate a payment arrangement. There will still be interest on it but there will be no late payment penalties etc. 

soapbox

Thanks to all for inputs so far - very useful.  In response to a couple of the above, yes, he did save towards paying his tax bills, but with significantly reduced income since March when live performances and associated work for entertainments sector work stopped abruptly, he has had to dip into these funds in order to survive paying rent and food bills etc.  
And to Jon: "I know with no income now why he would have spent down any savings, but there are only two certainties in life, death and taxes, so keeping the money aside for taxes would have made sense to me."  
And to us too, but in so doing he would have run out of money much sooner and then been looking at Universal Credit or other support benefits to help him out.  Would UC (or others) be supportive of him having/keeping "funds set aside to pay taxes" and ignore it before they dish out any benefits ?  Neither of us know much of UC or similar - hence my questions on here - but judging on a first pass of the UC system and "making work pay" it looks like they take 50%(?) of what you earn off any benefit they pay out (@£100/week I believe).  So if you earned £200/week you'd lose any UC payment.  How does this square with having £700-odd/month rent and other bills on top ?  Does UC cover rent separately ?  We don't yet know and are investigating....  Thanks

hb2

OP, you might be better asking your questions about UC over on the 'benefits' board - https://forums.moneysavingexpert.com/categories/benefits-tax-credits there are some very knowledgeable and helpful peeps who post over there. They might see your questions here but they are certain to see them if you post there.

calcotti

soapbox said: Would UC (or others) be supportive of him having/keeping "funds set aside to pay taxes" and ignore it before they dish out any benefits ?  

Yes they would have been. DWP made a policy statement that if self employed could demonstrate money had been set aside to meet tax liability it would be ignored. All capital below £6,000 is ignored anyway. Between £6,000 and £16,000 it reduces benefit payable but does not prevent a claim being made. Only with capital over £16,000 is a potential claimant automatically excluded from claiming UC.

soapbox said:

Neither of us know much of UC or similar - hence my questions on here - but judging on a first pass of the UC system and "making work pay" it looks like they take 50%(?) of what you earn off any benefit they pay out (@£100/week I believe).  So if you earned £200/week you'd lose any UC payment.  How does this square with having £700-odd/month rent and other bills on top ?  Does UC cover rent separately ?  We don't yet know and are investigating....  Thanks

Maximum UC payable is made up of a personal allowance plus a housing element to help with rent (plus elements for children and ill health if applicable). The amount payable is reduced by 63% of any earnings. The amount of help with rent is capped by the applicable Local Housing Allowance https://lha-direct.voa.gov.uk.

If he is single and over 25 he has a personal allowance of £409.89/month. Say he is eligible for £500 housing element. Maximum UC payable is then £909.89. The earnings level at which he would have nil payable in this case (assuming no other income and no savings over £6,000) would be £909.89 / 63% = £1,444.27/month.

If there are children or limited capability for work the claimant has a work allowance which means that the first £292 of earnings would be ignored (if a housing element is included).

He may also be able to claim Council Tax Reduction from his local authority to help with Council Tax.

Use a benefit calculator to assess entitlement https://www.gov.uk/benefits-calculators

hb2

OP, Calcotti is one of the experts I mentioned, so you have had good advice.