Background
Taxpayers registered under Self Assessment will need to make their second payment on account for 2020/21 by the deadline of 31 July 2021.
This second payment on account is based on 50% of an individual’s combined Self Assessment tax and class 4 NIC liability for the 2019/20 tax year. There can be beneficial cash flow opportunities however where the actual liability for 2020/21 is either higher, or lower, than for 2019/20.
Detail
Many taxpayers will have now received a Self Assessment statement detailing their second payment on account for 2019/20 due by 31 July 2021. Unlike last year no concession to be able to defer this payment is expected.
It is also important to note that if a taxpayer has not yet settled their Self Assessment tax liability due at 31 January 2021 then it is recommend they do so by 31 July 2021 otherwise a 5% penalty surcharge will become chargeable on any amount outstanding from 31 January 2021 on 2 August 2021.
2020/21 liability is lower than 2019/20
Where an individual’s taxable income has decreased, when compared to 2019/20, after deducting the January and July 2021 payments on account tax will have been overpaid. There is no legal requirement to alter the July payment on account, and HM Revenue & Customs (HMRC) will be happy to hold on to the overpayment until the actual liability has been established.
However, where an individual believes their liability will be less a formal application can be made to HMRC to reduce their July payment on account if the taxpayer wishes to avoid overpaying.
2020/21 liability is higher than 2019/20
Where an individual’s taxable income has increased, when compared to 2019/20, after deducting the January and July 2021 payments on account there will be a balance owing to HMRC. This additional liability is not required to be added to the July payment on account, and HMRC will not request that it is. The balance is not in fact due until 31 January 2022, effectively providing 6 months interest free credit.
Therefore, at 31 January 2022, an individual will be required to pay the balance for 2020/21 together with their first payment on account for 2021/22 of 50% of the total liability for 2021/22.
What to do if can’t pay your tax on time
Taxpayers struggling to pay their second payment on account on 31 July or tax from earlier years may, under certain circumstances, be able to enter into an extended payment agreement with HMRC.
In such a situation, an individual should firstly make a realistic estimate of when they can settle the amounts due, either via instalments or by payment in full and then contact HMRC’s Business Payment Support Service on 0300 200 3835. Despite its name non business customers can also use this number to request a Time to Pay Arrangement. Generally, HMRC are likely to agree as long as the repayment schedule suggested clears any outstanding liability before the next liability becomes due for payment.
It is important that contact is made with Payment Support BEFORE the tax is due for payment on 31 July 2021, otherwise penalties may be applied for late payment and HMRC may not agree to an extended payment schedule. It will obviously be harder to make contact nearer the deadline as the volume of taxpayers seeking to make an arrangement increases. We would therefore recommend getting in touch with HMRC sooner rather than later.
For those individuals that may already have missed a Self Assessment payment deadline, particular for a previous tax year, then they should contact the Self Assessment Payment Helpline Telephone on 0300 200 3822.
As the arrangements are at HMRC’s discretion they can refuse a request and insist that the tax due is paid. In order to agree to a delayed payment plan however HMRC will require a significant amount of information in order to assess an individuals circumstances. This will include:
- the tax reference number (e.g. 10-digit unique taxpayer reference)
- the amount of tax due and the reason why payment is difficult
- what action has been taken to try to obtain the funds to pay (e.g. contacting a bank or other lenders)
- how much can be paid immediately and how long is required to pay the balance
- details of income, expenditure, savings and investments
- the actions being taken to get tax payments back in order
- bank account details to set up a Direct Debit for the arrangement.
HMRC will still charge interest on any extended payment liabilities but surcharges are notapplied if payments are made as agreed in the arrangement.
Late Payments and Surcharges
Interest is charged on overdue tax, currently at 2.6% per annum, and this also applies to extended payment arrangements. For liabilities due by 31 July 2021, if no payment arrangement is in place, surcharges based on the amount of tax outstanding (in addition to interest) will be added to any liabilities still unpaid at the following dates:
- an initial 5% on 2 March 2022
- a further 5% on 2 August 2022
- a final 5% on 2 February 2023.
If you would like more information on any of the above or if you require any advice or assistance regarding your payment on account please speak to your usual contact at the firm.
Our Current working arrangement – We remain ‘Open for business’
Our staff have returned to office based working on a rota basis, each attending two days a week, whilst continuing to work from home at other times. They can still be contacted in the usual way either via email or by calling the office number where reception will divert your call to the appropriate staff member.
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