31 July: To pay or not to pay?
This year seems to be absolutely flying by and it’s already time for the second ‘payment on account’ from the 2018/19 tax year to be paid. Recently though, as part of the package of measures announced in response to Covid-19, the Government has announced that this instalment, due by 31 July 2020, can be deferred until 31 January 2021 if necessary. No application or prior approval is required.
However, this payment won’t simply disappear – you will still be expected to pay it by the end of January. For that reason, we would obviously advise our clients to continue paying their Income Tax on time, where possible, only deferring if they absolutely 100% need to. By the time January comes around you may well have another tax liability that is due for payment, in addition to this deferral.
If you are worried about the looming tax payment – which is understandable considering everything that has happened so far this year – there are ways to potentially reduce it by simply being a little more organised. In fact, you may not need to pay it all – or have it reduced – if your tax liability for 2019/2020 is less than what it was in 2018/2019.
When calculating your Payments on Account (PoA) – which are advanced payments towards the following year’s tax and NI contributions – your tax bill for 2018/2019 will have been divided in half. If, however, you have been organised enough to have sorted out your accounts for 2019/2020 already and you know that you had less self-employed income during that period than in the previous 12 months, it is possible to approach HMRC and ask them to reduce your payments on account.
You do need to be sure of your numbers though, so getting your accounts up-to-date and submitting them to us in good time, is the best way to do this. If you simply approach HMRC without being sure of the numbers and have reduced them too much, you could face interest charges and even a penalty.
If you file your accounts online, there is a section headed ‘reduce my payments on account’.
It’s important to note that you do need to tell HMRC that you’d like to reduce your payments on account – don’t just send them less money by 31 July. It will simply show up that there is an amount outstanding and you’ll be chased for it. As well as incurring late payment charges of course.
If you’ve got any questions at all, then please do contact us on 01892 513515 or info@lewisandco.biz. We’re here to help!