I have had quite a few confused contacts from clients over the last few days about ‘Payments on Accounts’ – advance payments towards your Self Assessment tax bill, including Class 4 National Insurance if you’re self-employed.
The issue is this, normally people would have a second 2020/21 instalment due at the end of this month, then potentially a balancing payment due on 31st Jan 2021, plus a first payment on account for 2021/22.
When Chancellor Rishi stood up at the start of the Coronavirus crisis he said that if people found themselves in financial difficulty they could defer their July 2020 payment to January 2021. HMRC followed up by saying there was no need to claim to do this but if you could pay in July you should, otherwise just pay in January 2021.
Now, in direct contradiction to this earlier comment, they are sending statements out saying just pay in January 2021. Mixed messages!
I am writing to all my clients to say,
“You can defer until January but I would suggest if you can pay in July do.”
My reasoning for this is that everyone will not pay in July, forget they haven’t paid and then get to January 2021 with the July 2020, January 2021 balancing payment and January 2021 first payment on account to pay all in one big lump. At this point their first action will be to ring me up, in high dudgeon and shout at me, because I haven’t told them to expect such a ridiculously large payment!
This is slightly tongue in cheek, but I’m afraid that is how it may pan out. So, the message is this,
“You can defer your payment until January 2021, but don’t forget if you do this you may have to pay, in effect a year and a half’s tax all in one go.”
On a serious note, if you are finding it difficult to make your second payment on account by 31 July 2020 due to the impact of coronavirus, the option is there, and it’s worth bearing in mind the following:
- You don’t need to tell HMRC that you’re deferring your payment on account.
- Choosing to defer won’t stop you from being entitled to other coronavirus support that HMRC provides.
- HMRC won’t charge interest or penalties on any amount of the deferred payment on account, provided it’s paid on or before 31 January 2021.
If you have any queries related to this matter please contact your tax advisor.