Early on in the UK lockdown, the government announced that you could defer your payment on account for 31st July 2020. Here I discuss exactly what that means for you…
What is a payment on account?
When you submit your tax return, HMRC calculates how much tax is due for the previous period. This amount is due on the 31st January. They will also add another 50% of that amount to the total due in January as a ‘payment on account’. This is basically a prepayment towards the next tax period. The other 50% becomes due on the 31st July of the same year. Then when you reach the following January and the next tax return has been submitted, any remaining balance is due (or refunded if your profits were lower) plus 50% is due towards the next year. And then the cycle starts again.
What are the options for the July 2020 payment on account?
If you can afford to, then you can still make the payment on account as normal. However, if you’re struggling to pay, then you can defer the payment until the latest of 31st January 2021. You don’t need to inform HMRC of your decision. If you choose to defer it then there will be no late interest fees as there normally would be. Your balance will just get rolled over to the next payment in January. However, don’t forget you will still have the balancing payment in January to pay as normal as well as the deferred amount. At the time of writing HMRC have said there will NOT be an option to defer your January payment.
The best way to ensure you’re not paying too much…
Now, probably more than ever, is the time to plan ahead with your accounting. If you haven’t submitted your 2019-20 tax return yet then this should be a priority. Although it isn’t due until 31 January 2021, by submitting it now, you know exactly what payment will be due in January and can plan and budget accordingly. This may even reduce your payment if your profits were down in 2019-20.
Are your earnings going to be less this year? – Don’t pay more than you need to!
Even with the government support with the Self Employed Income Support Scheme (which must be declared as income on your next tax return), I think it’s fair to say the majority of small businesses are going to make less profits this year. Now these accounts aren’t due until 31st January 2022, but your first payments on account will fall due on 31st January 2021. With some forward planning and forecasting, if it’s looking like your profits will be down then you can reduce your payments on account. This means that in January 2021 and July 2021 your payments on account will be less!
Do you need help?
If you would like help in processing your 2019-20 accounts, producing a forecast for the rest of the year or both, then please give me a call. I always offer a free no obligation call to answer your questions and to see how I can help you – Dave Shannon – 01782 906001
