Self-assessment taxpayers should think hard about July bill deferral
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Taxpayers need to think now about their likely cashflow this year so that they can warn HMRC if they need time to pay their tax bills, a leading tax and advisory firm has warned.
HMRC have said that July tax payments for anyone who pays by self-assessment will be deferred until January 2021.
Fiona Fernie, a Tax Dispute Resolution partner at Blick Rothenberg, said: “I would urge taxpayers if they have the money 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."
Ms Fernie said it was understandable that most people are primarily thinking about how to pay the mortgage and put food on the table during the Covid-19 crisis.
However, she cautioned: "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 which will be in respect of pre Covid-19 profits and income 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”.
Self-employed taxpayers normally make payments on account of their tax liability on 31 January during a tax year and 31 July following the end of a tax year with a final balancing payment if necessary, on 31 January following the end of the tax year at or after submission of their tax returns.
The first and second payments on account are based on the income of the previous tax year unless in submitting the previous year’s tax return an application is made to reduce the payments on account because the taxpayer has some reason for anticipating that earnings will be less in the following tax year.
