Self-assessment taxpayers will be fully aware that their Tax Return for the year ended 5 April 2020 must be filed by 31 January 2021, however, some may be unaware of the potentially large tax bill that could also be due.
Many taxpayers took advantage of Government support earlier in the year and chose to defer their July 2020 payment on account. Any deferred payment on account will now fall due for payment on 31 January 2021 meaning taxpayers could face a ‘triple hit’, owing their deferred July payment on account, their 2019/20 balancing payment, and their first payment on account for 2020/21.
Taxpayers who think they will struggle to make their January tax payment are advised to contact HMRC and set up a payment plan to spread the cost. This option is available to taxpayers who:
Owe less than £30,000;
Do not have any other payment plans or debts with HMRC; and
Have submitted their Tax Return on time
Payment plans need to be set up by the taxpayer themselves and can be done either online through their digital tax account or by phoning the HMRC Self-Assessment payment helpline on 0300 200 3822.
Claims to reduce payments on account for 2020/21
Payments on account (POA) for 2020/21 are automatically based on the 2019/20 tax liability. Given this year’s events it is likely that many businesses will see a drop in their profitability for the 2020/21 tax year. Anyone who thinks that their taxable income will be lower in the year ended 5 April 2021 can make a claim to reduce their POA, either on the Tax Return itself or by making a standalone claim if the Tax Return has already been submitted.
A final point to note is that any income received under the Government’s self-employed income support scheme (SEISS) is liable to both Income Tax and Class 4 National Insurance. Any taxpayer considering reducing their 2020/21 payments on accounts must, therefore, include any income from the SEISS in their reduced profit calculations.