Taxpayers urged not to defer self assessment payment on account

Buy-to-let landlords suffering hardship as a result of the coronavirus pandemic can defer their July tax payment on account, but taxpayers who have the money are being urged to pay now in order to avoid being faced with a double bill.  

Most self-assessment taxpayers make one tax payment in January and a second in July each year. These are known as ‘payments on account’.

But the Chancellor, Rishi Sunak, has confirmed that the government will be willing to defer July 2020 payments on account for the self-employed in order to help them through the Covid-19 crisis.

This is an automatic offer with no application necessary, and no penalties or interest for late payment charged if the July 2020 payment is deferred until 31 January 2021, however, people are being urged to pay now so that they are not faced with a double bill. 

Fiona Fernie, a tax dispute resolution partner at Blick Rothenberg, said: “HMRC have said that July tax payments for anyone who pays by self-assessment will be deferred until January 2021, but if taxpayers have the money, I would urge them to pay now so that they are not faced with a double bill.  

“Many will still be worried that even if they pay the July instalment, they may not be able to pay what they owe in January – particularly in view of the fact that for those who have continued to operate their businesses (albeit many at a reduced level) will also have to pay the first instalment of their 2020/21 tax bill in January 2021.  If they alert HMRC to the problem, then they should be able to obtain a time to pay [TTP] arrangement.”

HMRC will be sympathetic to what has happened to people’s finances but the earlier they are told the better it will be for both parties, according to Fernie. 

Fernie added: “Understandably most people are primarily thinking about how to pay the mortgage and put food on the table, but it is important to remember that the postponement of the 31 July 2020 payment on account merely delays the liability; it does not wipe it out.  

“Taxpayers will still have the problem of how they fund their tax bills in January 2021, potentially before they have seen a full recovery of their business; with the resulting impact on cashflow. 

“As I say, if the situation allows, it is probably sensible to make the July payment as normal, but even if taxpayers feel that circumstances are too uncertain to do that or they would rather retain a “buffer” in their own bank account in case finances become even tighter, if at all possible setting aside the money now (or over the course of the next few months), but retaining it rather than paying HMRC, is a sensible approach.”

It is vital that taxpayers monitor their finances and think about how they will cope, so that if necessary, they can approach HMRC for a TTP arrangement before they face an imminent deadline. 

Fernie continued: “If they do not do this it could be difficult in January and HMRC is understandably less likely to be sympathetic to those who only request TTP on the day they are due to make payment. 

“Furthermore, if taxpayers just allow the payment deadline to pass, without taking steps to arrange TTP, HMRC may be more likely to open an enquiry, which would be time consuming and stressful for them – particularly at a time when the economic conditions are difficult and they are concentrating on rebuilding their businesses.  All that is required is a sensible piece of housekeeping.”

The payment in January 2021 will now consist of three parts: the delayed payment, the normal balancing payment and the first payment on account for the 2020/21 tax year.

Fernie said: “The first two of those payments are in respect of a period which was completed prior to the vast majority of the impact of Covid-19; the tax year ends on 5 April and lockdown started on 24 March – therefore most people were earning at their anticipated levels for all but 2 weeks of the tax year – these two payments alone could therefore be considerable when having to be made after a significant period of reduced income.

“The payments on account for 2020/21 will be based on last year’s (much higher) level of income unless when making this year’s return a claim is made to reduce payments on account because of anticipated reduced income.”

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