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Self Assessment: Should You Defer Your Second Payment On Account?

Our latest affiliate is  Go Simple Tax who are offering our mastermind group (The Insiders – learn more here) a 10% discount on all of their packages. They will also be writing for us so together we can help you stay up to date on what you need to do….

For 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 cash flow if you’re caught unaware.

That’s why, in response to the COVID-19 pandemic, HMRC announced that they would allow taxpayers to defer their second payment on account (that would have normally been due on 31st July 2020). It is hoped that this gives taxpayers the chance to prepare. But is that the right course of action? We’ve brought in Mike Parkes from GoSimpleTax to set the record straight.

What is a payment on account?

Payments on account are advance payments towards your next tax bill. They’re calculated based on the amount that you paid the previous year.

HMRC splits this amount into two, and places the deadline for payment six months apart from one another. For the 2019/20 tax year, the first was due by midnight on 31st January 2020, and the second would normally be made by midnight on the 31st July 2020.

This latter payment is what can now be deferred, as long as it is eventually paid by the 31st January 2021.

If you had a £5,000 tax bill for the 2018/19 tax year, for instance, you would need to make two £2,500 payments on account towards your 2019/20 tax bill.

But if your 2018/19 Self Assessment bill was less than £1,000 or if over 80% was deducted at source (such as employment), then you will not need to make a payment on account – you would simply need to pay any outstanding tax by the 31st January.

What are your options?

If you are required to make payments on account, you will still need to pay your second one. Although, as HMRC has offered taxpayers the opportunity to delay this, you can choose to make your second payment as late as the 31st January 2021, alongside the submission of your Self Assessment tax return.

HMRC will not charge any interest or penalties should you choose to do this. However, by delaying your second payment to January, you do run the risk of having to fulfil all your tax responsibilities at once. This could result in you having insufficient funds in place to cover all your tax liabilities.

Your therefore have three options:

Pay in accordance with the original July deadline

If you can afford to pay your tax bill as you would do normally, you should do. If anything, it creates a sense of ‘business as usual’ in an otherwise tumultuous time.

I appreciate that, for many, paying in July will harm their cash flow. However, it is my view that clearing debt where possible is more sustainable and allows January to mark the start of a new financial year – and a fresh start.

Reassess and reduce liability

If you’re doubtful that you can afford a second payment on account right now, calculate your 2019/20 tax liability before the 31st July 2020. This will confirm the actual amount to be paid in July 2020, January 2021 and July 2021, and give you clarity. To do this, you need to file your 2019/20 Self Assessment tax return early.

Filing early won’t mean that you have to pay your tax bill early, after all – but it does allow you to determine what your total tax bill will be ahead of time. From here, you can consider two key points:

  1. Does the July 2020 payment on account need to be deferred?
  2. Do the January 2021 and July 2021 payments on account (for the 2020/21 tax year) need reducing to reflect the impact that COVID-19 has had on them?

Defer to later in the year

Of course, there will be some cases that are unable or unwilling to pay anything towards their tax bill in July now that they can defer. In this instance, it’s important that they are reminded of the Self Assessment late penalties should they wish to push this all the way back to 31st January and be unable to make payment at that time.

Deferring could have an impact on cash flow in 2020/21. If you are also VAT-registered and have deferred your VAT payment, then it is worth noting that this also needs to be paid by 31st March 2021.

Ultimately, it falls to you to make the decision that best suits you. However, it is my view that, by planning your 2021/22 payments now, you will be in a much safer position.

About GoSimpleTax

With GoSimpleTax, business owners can get a clear picture of their obligations. All your income can be logged in an easy-to-understand format, and their software will highlight areas where you can potentially reduce your tax liability through tax relief.

Register for their free trial today and stay abreast of all the latest tax changes. When you’re ready to file your Self Assessment tax return, upgrade to their full service and submit straight to HMRC.

  • July 18, 2020

Google My Business – your how to guide courtesy of Kate Everett – Colchester networking event

We are keen to ensure our speakers at our events never sell at you and deliver high quality business and professional development ideas and solutions for women in business. We are already lining 2020 speakers and if you know of one you’d love to see at The BWN please do get in touch.

Here Kate Everett from TWI talks about Google My Business for women in business. It was fascinating and really useful stuff. Let us know how you get on and already over on the Insiders we are looking at ways to maximise on this. Not in yet? You can learn more about our confidential mastermind group here. It’s 24/7 and it’s epic – not our words, the Insiders!

  • July 23, 2019

Nadine get’s in on the act and we love it!

It’s not just our members that call us their business school (as well as their network organisation.) Our coorindators also love that they get to learn new skills to grow their own businesses.

We often get asked to look at blogging for business and how to get people;

  • To read blogs
  • Action on them
  • And get people to buy.

So to see our very own Nadine Gamble from Utility Warehouse create her first blog we had to share it (Well some of it, to read her first full blog head over to her new website here.)

So, as you may have already guessed my name is Nadine, and I thought it’s about time I hauled myself into modern day times and delved into this new fangled world of blogging!

I’m going to be honest here, it’s something that’s been on my ‘must get this done’ list for at least a year now, yes, you read that right, twelve whole months of pondering how to even get started in this mysterious world of which I have managed to successfully avoid up until now!

Not that I had gone out of my way to avoid it, rather that I have never actually known exactly what blogging is, or how to go about it, so perched very happily within my comfort zone I have been shooting the occasional glance over my shoulder into the blogging world, but never dared to venture further!

I’m also involved with a fabulous group of ladies who make up The Business Womans Network, hosting my own events for local business women in my area (Tendring) to come together to learn and support each other in a nurturing environment where friendships and business relationships can flourish. Empowering women to live their best lives is something I am passionate about, and I love that more and more women are finding their own way in the world, challenging the prehistoric beliefs that it is only men that can have it all.

Now I’m guessing that you’re probably going to get a little bored of reading all about me, so I’m going to sign off now, and each week I will be sharing with you not only some of the randomness that goes on inside my head, but also some really excellent information about how I help people save money, make money, and grow their businesses. I would really appreciate it if you could share my blog site and if you would like any further information about anything that I do, or even just some random questions, please feel free to get in touch!

Thanks to Nadine for letting us share her first blog. You see as women in business we never stop learning and to see our coordinators jumping in and going for it, is awesome. If you wish to learn new skills and network with like minded business women in a relaxed environment do join us. We would love to share your blog articles too!

  • May 29, 2019