The second payment on account for the 2020/21 tax year is due by the end of next month and, for some taxpayers, there may be a cash-flow advantage in filing their Self Assessment tax returns early.
Payments on account assume that your taxable income will be at the same level as in the previous tax year. Therefore, if your taxable income is lower for 2020/21 than in 2019/20 the payment on account due by 31 July may be too high.
Any taxpayers who think they may be in this position should consider filing their tax returns before 31 July so that they can pay the correct amount of tax, and not overpay. This is particularly important as there is currently a significant delay in HM Revenue & Customs (HMRC) issuing repayments.
On the other hand, taxpayers who have already claimed to reduce their payments on account should double-check their income for 2020/21 as interest will be charged if the payments on account were over-reduced. By confirming the actual position for the year, they can make sure they pay the right amount of tax on time and reduce interest.
A couple of points that may catch people out is that any self-employment income support (SEIS) grants received during the 2020/21 tax year are taxable and should be added to income.
Don’t forget about National Insurance if you’re self-employed; Class 4 National Insurance contributions (NIC) is included in payments on account, and different thresholds apply which means you may have an NIC liability even if you don’t have an Income Tax liability.
Payments on account don’t include Capital Gains Tax, so if you have realised any capital gains in 2020/21 this won’t impact your payment on account.
Would you like to know more?
If you would like to discuss the above or how it may affect you, please get in touch with your usual Blick Rothenberg contact or Stefanie Tremain, using the details on this page.
For any press queries, please contact David Barzilay whose details are on this page.