Months of lockdown, restricted trading and money spent on anti-Covid-19 measures mean that thousands of small business owners are at breaking point. But for many, next Sunday's tax payment deadline could be the final straw.
While revenues have collapsed as a result of ten months of zero or little money coming in, costs such as rent, mortgages, utility bills and leases have all still had to be paid. This has meant that money normally put aside to meet tax bills has in many cases been depleted, along with any cash buffers and even personal savings.
Simply trying to stay afloat has cost many business owners very dear. Yet, now, they face income tax bills from the previous financial year (to April 5, 2020), when coronavirus was only starting to make an impact on the economy.
Fight to survive: Dennie Smith's hair salon is closed due to lockdown but she still has to pay rent and tax bills
Leading business groups are urgently calling for an extension to the self-assessment deadline to give struggling businesses a much-needed financial breathing space.
Like many others, Dennie Smith is not having a great month. Not only is her South Croydon hair salon, Vintage 62, closed due to the latest lockdown, but after a year in which revenue fell by half, she faces a tax bill of almost £14,000.
'It's just horrendous,' she says. 'We usually generate sales of around £165,000 a year but due to all the lockdowns, tier restrictions and being unable to work at full capacity when we could open, we're 50 per cent down.
'We lost £4,000 in bookings just in the week before Christmas when we had to close with hardly any notice and I just sat down and cried.'
Having sold her house to launch her business six years ago, Dennie has two lots of rent to pay – the salon costs £1,250 a month even when closed, and there are extra bills on top. She was able to access a few business grants but this doesn't even start to cover her expenses. Also looming are two large VAT bills from the time she was able to open briefly.
She can only pay her upcoming tax bill thanks to a legacy from her recently deceased parents-in-law. 'Without that, we would have gone bankrupt,' she says.
'A lot of businesses are in a terrible situation, while employees are being paid for sitting at home. If you haven't been able to earn money for months, where are you supposed to find the money to pay your tax bill?'
Penny Callaghan opened her fashion boutique and online store, Colmers Hill, near Bridport in West Dorset, five years ago – having previously run a shop in Lyme Regis. She has lost five months of trading.
'It's been a nightmare,' she says. With stock ordered before lockdown having to be paid for, as well as incurring business costs throughout lockdown, Penny has had to use every penny of her cash reserve to keep Colmers Hill afloat.
She says: 'I'm not sure how much longer I can keep on going. If we're closed for another two months, it will be a huge problem.'
Like other retailers, Penny was able to claim some business grants and is grateful for the support. Yet she adds: 'It only goes so far and we've lost £100,000 in income due to the pandemic.
'I had to get a Bounce Back loan, otherwise we would have gone under. Now I'm just hoping for the latest grant to be paid so I can pay my tax bill. Obviously, I'd rather use that to support my business.'
Several organisations are calling on the Government to extend the end-of-month deadline to give small businesses a vital breathing space.
The Association of Chartered Certified Accountants has been lobbying HM Revenue & Customs for an extension, but so far has been rebuffed.
Glenn Collins, head of technical advisory and policy, wrote to the tax office saying: 'We would urge Revenue & Customs to reconsider and extend the deadline until the end of the tax year [April 5, 2021] in order to provide relief for struggling businesses.'
So far, Revenue & Customs is standing firm but says the automatic penalties for late filing will not be payable – although they are likely to be issued and then cancelled on appeal. Penny says an extension to the month end deadline would be 'amazing'. 'It would really help,' she adds.
'It would mean we could hold a bit of money back and keep the business ticking over until we can open again.'
Mike Cherry, chairman of the Federation of Small Businesses, says: 'This has been a brutal year for the self-employed. Even for those who've had some help, bills have mounted, debts have skyrocketed and revenues have crashed.
'The Government must manage the threat of looming tax bills responsibly and make clear it will help those who'll struggle to pay.'
WHAT TO DO IF YOU CAN'T PAY YOUR BILL
Even if you can’t pay what is owed, you – or your accountant – should still file your self-assessment form by the deadline at the end of the month.
Revenue & Customs will automatically issue a £100 fine if you fail to file by January 31. But it has indicated that fines will not have to be paid if the delay is as a result of the pandemic.
If you cannot pay your self-assessment tax bill, you may be able to pay in monthly instalments if you owe less than £30,000 and you do not have any other debts with Revenue & Customs. But interest will be payable on the outstanding balance from the start of next month.
If you cannot pay other tax bills due to coronavirus, contact the Revenue & Customs Covid-19 helpline on 0800 024 1222 or via its chatroom via gov.uk.