SELF ASSESSMENT
Choosing the right time Mike Parkes asks whether you should defer a client’s second payment on account. Mike Parkes Technical director, GoSimpleTax
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or those that are new to the Self Assessment tax return process, payments on account are one of the most common stumbling blocks. Despite being introduced as an initiative to help taxpayers spread their tax payments, it often results in annual frustration and can actually harm your client’s cash flow if they’re caught unawares. That’s why, in response to the Covid-19 pandemic, HMRC announced that it would allow taxpayers to defer their second payment on account (that would have normally been due on 31 July 2020). It is hoped that this gives taxpayers the chance to prepare. But is that the right course of action?
What is a payment on account?
Payments on account are advance payments towards your client’s next tax bill. They’re calculated based on the amount that your client paid the previous year. HMRC splits this amount into two, and places the deadlines for payment six months apart from one another. For the 2019/20 tax year, the first was due by midnight on 31 January 2020, and the second would normally be made by midnight on 31 July 2020. This latter payment is what can now be deferred, as long as it is eventually paid by 31 January 2021. If your client had a £5,000 tax bill for the 2018/19 tax year, for instance, they would need to make two £2,500 payments on account towards their 2019/20 tax bill. But if their 2018/19 Self Assessment bill was less than £1,000 or if over 80% was deducted at source (such as employment), then they will not need to make a payment on account. They would simply need to pay any outstanding tax by 31 January.
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What are your client’s options?
Author bio
Mike Parkes has a detailed understanding of personal and small business taxation, bringing depth of knowledge to the product development process.
If your client is required to make payments on account, they will still need to pay their second one. However, as HMRC has offered taxpayers the opportunity to delay this, your client can choose to make their second payment as late as 31 January 2021, alongside the submission of their Self Assessment tax return. HMRC will not charge any interest or penalties should your client choose to do this. However, by delaying their second payment to January, they do run the risk of having to fulfil all their tax responsibilities at once. This could result in your client having insufficient funds in place to cover all their tax liabilities. Your client therefore has three options. ISSUE 112 | AIAWORLDWIDE.COM
