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Our sister site Tax Insider helps landlords and other taxpayers to understand taxation matters and to reduce their tax burdens. In this guest post they explore the financial help that is available for landlords who may have been affected by the pandemic.
What Help Is There For Landlords?
Although there has been a distinct lack of help for landlords from the government, there are some initiatives of which landlords may be able to take advantage.
Practical Tip
The rules regarding filing dates have not changed and therefore taxpayers may be advised to file their self-assessment returns as soon as possible to facilitate planning for the tax payment due in January 2021 or perhaps crystallise any refund due from the previous year 2019/20 if available.
Landlords Can Claim
- Tax payment deferral – second payment on account of the 2019/20 payment on account until 31 January 2021
- Access to bank finance through the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) – a bank loan available to all businesses
- Coronavirus Job Retention Scheme (CJRS) – for those landlords who have employees
- Business rates holiday – available for those landlords or occupiers of commercial property who pay business rates e.g. hotels etc
- Grant support connected to business rates status
- ‘Time to Pay’
Although taxed as if they are trading, as previously stated HMRC deems rental income to be an investment business and therefore landlords are not entitled to claim under the Self Employed Income Support Scheme.
Those landlords who have a number of properties or large properties and employ staff may be able to claim a grant under the CJRS of up to 80% of the salaries of those employees who are furloughed (subject to a cap of £2,500 per month) instead of making them redundant. This grant is reducing in percentage over the next few months to October 2020. Sole director company landlords may furlough and claim a grant under the same scheme. The vast majority of said directors withdraw payment in the form of a small salary and dividends and dividends do not count as the ‘salary’ payment required; the amount received will be less than £600 (depending on the month of claim).
Tax Payment Deferment
Under the coronavirus guidelines all taxpayers taxed under self-assessment were allowed to automatically defer the 31 July 2020 second payment on account for 2019/20 until 31 January 2021. HMRC are not charging penalties or interest for late payment and have suspended debt collection proceedings during the months of May to September however, to date no further announcements have been made as to the situation in the future.
Practical Tip
It must be stressed that this initiative was a deferment and not a cancellation of the tax liabilities. If deferment was taken then it would be advisable to make whatever payment is possible towards the final liability as the following may be due all together on 31 January 2021 (depending upon/ the taxpayer’s circumstances):
- Deferred 31 July 2020 second payment on account for 2019/20
- the balancing payment for 2019/20
- first payment on account for 2020/21
‘Time To Pay’
If a taxpayer comes to 31 January 2021 and finds that he/she cannot pay any or all of the tax due then the current situation is that they will have to apply for instalment payments under the ‘Time To Pay’ (TTP) scheme. In ‘normal’ circumstances HMRC are usually reluctant to agree to repeated requests for ‘TTP’ but whether they will be more amenable in the current situation including waiving late payment penalties and any interest due remains to be seen. No further announcements have been made to date.
Under the original ‘TTP’ arrangements, instalments are paid by direct debit on a monthly basis usually over six to 12 months (agreements have been known to be applied over longer periods but it is not a guarantee) however during the coronavirus crisis longer time periods may be available.
Most HMRC debt management contact centre staff have the authority to agree ‘TTP’ over a period of up to 12 months. Longer periods can be arranged but usually need to be referred to more senior HMRC staff which will take longer to agree.
Practical Tip
HMRC’s systems can only defer tax liabilities that are due imminently so if a landlord finds that he/she cannot pay any of the 31 January 2021 payments then application under the original ‘TTP’ scheme is currently the only option. The suggestion is that the taxpayer contacts HMRC about two to three weeks in advance of the tax due date.
Again, whether HMRC will take a more lenient view of underpayments of tax after the 31 January 2021 payment date has passed remains to be seen.
When a taxpayer contacts HMRC to discuss joining a ‘TTP’ scheme the HMRC operatives ask a set list of questions to ascertain the reason for the request.
Such questions include:
- why full payment cannot be made,
- how much of the liability the taxpayer wishes to defer if not all of it,
- what steps have been undertaken to try to pay the bill;
- how long you may need to pay the rest;
- income and expenditure, assets, such as any savings or investments available that could be liquidated in order the satisfy the liability
Evidence is usually required to confirm that the financial distress is short-term, demonstrating a future improvement in cash flow. Such information also enables HMRC to assess the taxpayer’s ability to pay a set amount each month. Whilst the coronavirus guidelines are in place HMRC is not asking for detailed answers to such questions neither are they asking for specific evidence of income and expenditure or other financial statements (loans, credit card payments etc). They also look at past reliability of payment and whether tax returns have been submitted on time (this is still a prerequisite for claims under coronavirus).
Should a taxpayer already be paying under a TTP for any previous year’s tax liabilities then they will usually not be allowed to apply for another scheme and although this will not automatically preclude an additional TTP arrangement it may make it more difficult to arrange.
Note: HMRC have the option to cancel the agreement if the direct debits are not made; coronavirus or not. They also have the option to reinstate penalties as long as they have send a notice to that effect.
Importantly, as part of a TTP agreement, HMRC will expect that future tax liabilities are paid in full as they fall due. If the 31 January 2021 payments cannot be made a new TTP arrangement will be needed.
Practical Tip
Details of the TTP scheme can be found in HMRC’s ‘Debt Management and Banking Manual’ One of the most important sections of this manual is at DMBM800510 which confirms that agreement is usually only considered for past liabilities after the accounting period/year has ended. The reason being that it is HMRC’s belief that it is unlikely that the taxpayer can see into the future and prove that future liabilities cannot be paid.
Written by Jennifer Adams:
Jennifer Adams is a property tax specialist with a flair for helping clients structure their financial affairs in a tax-efficient manner. She appreciates the tax problems of property owners having a property portfolio herself. Jennifer writes for many leading publishers and can be relied upon for simple, straightforward advice. She runs her own accounting practice and her advice and specialist knowledge enables all of her clients to pay the least amount of tax that is legally possible.
Tax Insider publishes monthly newsletters and reports for everyone with an interest in responsible tax saving, including professional advisors, landlords, property investors, business owners, and general UK taxpayers. For more information and the latest property tax saving tips, visit the Tax Insider website.
