Background
Taxpayers registered under Self Assessment will need to make their second payment on account for the 2021/22 tax year by the deadline of 31 July 2022.
HM Revenue & Customs (HMRC) generally issue Self Assessment statements as a reminder to taxpayers of the payment that they are required to make by 31 July. However, we have recently become aware of a small number of instances where individuals who would have expected to receive a statement but who have not done so. Therefore it is important for taxpayers to be aware that even if they have not received a statement they are still required to make a payment on account where one is due. Taxpayers should check whether they are due to make a payment on account as soon as possible in order to avoid missing the deadline and incurring unnecessary interest.
Detail
The second payment on account for 2021/22 for those taxpayers registered under Self Assessment is based on 50% of an individual’s combined Self Assessment tax and class 4 NIC liability for the 2020/21 tax year. The deadline for making the second payment on account for 2021/22 is 31 July 2022, and interest is charged on any late payment. The interest rate charged by HMRC on late payments has recently increased to 3.75%.
Many taxpayers often rely on receiving their Self Assessment statement from HMRC as a reminder of their July second payment on account. However, taxpayers should be aware that even if they have not received a statement they are still required to make a payment on account if one is due. Therefore it is important that taxpayers check whether they are due to make a payment on account as soon as possible in order to avoid missing the deadline and incurring interest on any late payment. We will be happy to assist any clients who may want to confirm if they have a second payment on account falling due.
Self Assessment taxpayers may be able to reduce their second payment on account in certain circumstances and there can be beneficial cash flow opportunities where the actual liability for 2021/22 is either higher, or lower, than 2020/21.
2021/22 liability is lower than 2020/21
Where an individual’s taxable income has decreased when compared to 2020/21, after deducting the January and July 2022 payments on account tax will have been overpaid. There is no legal requirement to alter the July payment on account, and HMRC will be happy to hold on to the overpayment until the actual liability has been established.
Where an individual believes their liability will be less however a formal application can be made to HMRC to reduce their July payment on account. It should be noted that where a claim to reduce payments on account is made then any subsequent balancing tax payment will be subject to interest from the original payment on account due dates.
2021/22 liability is higher than 2020/21
Where an individual’s taxable income has increased, when compared to 2020/21, after deducting the January and July 2022 payments on account there will be a balance owing to HM Revenue & Customs. This additional liability is not required to be added to the July 2022 payment on account, and HMRC will not request that it is. The balance is not in fact due until 31 January 2023, effectively providing 6 months interest free credit.
Therefore, at 31 January 2023, an individual will be required to pay the balance for 2021/22 together with their first payment on account for 2022/23 of 50% of the total liability for 2021/22.
If you would like a reminder as to whether you are due to make a payment on account by 31 July 2022, or on the possibility of reducing your payment on account, please speak to your usual contact at the firm.
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