As we approach the tax return deadline of 31 January, self-assessment taxpayers will need to be preparing to pay their personal tax bills. However, if you chose to defer your July 2020 payment on account at some point last year (an option offered by HMRC to individuals following the first COVID-19 lockdown), the amount due to HMRC may well be higher than you would normally expect to pay in January.
There are a couple of things you can do to help with this…
Firstly, part of your tax due will be a payment on account for the current 2020/21 tax year, which is based on the assumption that your income in the 2020/21 tax year will be the same as your 2019/20 income was. For many people whose business or income has been affected by COVID, that will unfortunately not be the case and there will be an opportunity to reduce the payment on account to a more realistic level. We can do this for you if you speak to us. Something to keep in mind here is that any payments received via either the Self-Employed Income Support Scheme (SEISS) or the Coronavirus Job Retention Scheme (CJRS / furlough) will form part of your taxable income, so please do make sure this is considered.
Secondly, if after reducing your payment on account, you cannot afford to pay the amount due in one instalment, you can apply to HMRC for a ‘time to pay’ arrangement to spread the cost over 12 months as an alternative. Our blog from 9 October 2020 covers all the details of this new payment plan (announced by the Chancellor in his recent Winter Economy Plan) and how to do this (please click here to read the blog in full). Please note – you must apply for this scheme yourself, as HMRC will not let us do it for you. Please also note that interest will apply with effect from 1 February – the rate is currently 2.6% – and you may need to provide evidence of your inability to pay.
Deferral of VAT liabilities
On a related note, if you run a VAT registered business and chose to defer your VAT liabilities for the period between 20 March and 30 June 2020 – these amounts are due for payment by 31 March 2021. You can choose to pay by that date or you can apply online to spread the cost across instalments over the forthcoming year. The application portal for this further deferral is not yet open, but initial details can be found on the Government’s website here. Unlike self-assessment tax which is spread over the year, there will be no interest charged on such deferred VAT payments, providing you adhere to the agreed payment plan.
Get in touch today
As mentioned, our experienced team of tax advisers can support you in reducing your payment on account to a more realistic level, should you need to. We can also assist with the preparation and submission of self-assessment tax returns, so please do get in touch if you need support, either by contacting your usual PM+M representative or contacting us at firstname.lastname@example.org.
This information is correct as of 11 January 2021. This blog is for general guidance only. Recipients should not act upon any of the information provided without seeking specific professional advice tailored to your circumstances, requirements or needs. Please contact PM+M before making any decisions based on any matters relating to this blog.