Taxpayers in the Self Assessment system will be aware that HM Revenue & Customs (HMRC), may be expecting them to make a second Payment on Account (POA) in respect of their estimated 2020/21 UK tax liability.
However, those taxpayers affected by the Coronavirus pandemic, should consider closely whether it is necessary to make this POA now, especially as they will – in the first instance – be based on the tax liabilities which arose for the year ended 5 April 2020.
As the 2019/20 UK tax returns were not – in the main – impacted by the Coronavirus lockdown, many Self Assessment taxpayers may find that their 2020/21 income is much lower than their earnings for 2019/20.
While care needs to be taken in this regard – e.g., income paid to taxpayers via furlough or the Self-employed Income Support Scheme (SEISS) needs to be included as taxable income – taxpayers who have suffered a reduction in their taxable income during 2020/21 tax year do have the opportunity to formally reduce the POAs which are due by 31 July. In appropriate cases, it may be correct to reduce these July POAs to £0.
However, it is important for taxpayers to properly assess any claim to reduce their POAs – rather than just, for example, ignoring the POA deadline and not making any additional POA at this stage.
Self Assessment taxpayers need to review their estimated 2020/21 taxable income, after allowing for any appropriate deductions which might be available, and then, if appropriate, formally apply to HMRC for a reduction in the POAs that are payable. Such applications can be done over the phone, via post (with Form SA303), or for those taxpayers who have an HMRC tax account, online.
If taxpayers overestimate any claim to reduce their POAs, they could typically be liable to interest on the late paid tax – i.e., the amounts which could have been made as POAs and which are actually only settled as part of the overall tax return submission and final payment process.
The pandemic and the associated lockdowns have caused real difficulties for many self-employed workers, or for those with income from holiday or rental lettings. Hence it is important from a cash flow perspective, that such taxpayers do not tie up significant amounts of tax with HMRC on a ‘needless basis.’
While unnecessarily paid POAs would be repaid to the individuals in due course, HMRC is presently experiencing significant service pressures because of Covid, and it could be several months before any excessive POAs are refunded to the individuals concerned. Therefore, taxpayers need to carefully consider what POAs – if any – they should make at this point.
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 Robert Salter, using the details on this page.
For any press queries, please contact David Barzilay whose details are on this page.