Be Prepared To Defer Your Tax

Today is usually the due date for the second income tax payment on account under Self Assessment for the 2019/20 tax year. However as a result of the current coronavirus pandemic, HMRC have automatically deferred this 31 July 2020 tax payment on account, which will now become due on 31 January 2021, and it will therefore be payable together with the balancing payment for the 2019/20 tax year as well as the first payment on account for the following tax year 2020/21.

As this is automatically actioned by HMRC, it does not need to be applied for. This means that you do not need to do anything and you simply do not have to pay your second payment on account right now if you do not want to or are unable to. There will not be any interest or penalties due. You can of course still pay it if you want to.

 This payment on account of tax is for the year ended 5 April 2020. So apart from the last few weeks in March when the pandemic hit, this could be a normal year and could still mean a high tax bill, despite your current circumstances.

It goes without saying that we would recommend that wherever possible you keep sufficient funds aside so that you do not fall short in January 2021 but we realise this may not be realistic for most. For many this is a hugely welcome cashflow advantage but for some deferring the tax could realistically mean getting into huge debt later by having a massive accumulation of tax due by 31 January 2021, which has not been saved for.

Under the current circumstances, many individuals have not been earning or have been on seriously reduced income in the current tax year, so paying a large tax bill based on the previous year will be a sting and possibly a shock.

To help get ahead of your tax bill, here are our top tips;

• Get your 2020 Tax Return done as early as possible so that the tax due doesn’t come as a complete shock and you can prepare yourself

• Start putting a few quid aside each month towards your tax if you can

• Consider requesting a payment plan from HMRC when the time comes, but HMRC are unlikely to accept a request right now and this isn’t guaranteed

• Prepare a realistic forecast of income for the 2020/21 tax year when doing your 2020 Tax Return, so that you can consider whether you can reduce your payments on account for 2020/21 (which will be due 31 January 2021 and 31 July 2021)

• Take the opportunity to do a full financial review and look at your monthly income and outgoings. Review your bank statements and all things like your utility contracts, so you are not throwing money down the drain elsewhere.

• Acknowledge that your tax bill is not going away and face it head on with a plan, as HMRC will charge interest even if a payment plan is granted, and will charge surcharges on late payment if the tax is ignored.

• Speak to a professional adviser if you need help calculating your tax or planning your cashflow so you can prepare yourself.

HMRC are being exceptionally accommodating right now. Despite common perceptions, they will be helpful and if you are having trouble paying any tax bills, you can call their payment support telephone number on 0800 0159 559 and you can read more about their support here 

We hope this gives you some clarity, as we know that when something is clear and understood it’s much more likely to be less frightening.

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FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.