Self-Assessment Payments on Account – The Second Instalment (COVID-19 Edition)

Many individual taxpayers will soon be receiving a Self-Assessment statement from HM Revenue & Customs. This statement will have a payslip attached to it in respect of the 2nd payment on account for the 2019/20 tax year. This second payment on account would usually be due for payment by 31 July 2020 to avoid any interest and charges being levied by HMRC.

Virtually all individuals will have felt the effect of Covid-19 in one form or another. As a result, as part of their coronavirus support measures, HM Revenue & Customs are allowing UK registered tax payers who are finding it difficult to pay the second payment on account for 2019/20, an option to defer this tax payment until up to 31 January 2021.

If you choose to defer the July 2020 payment, you do not need to inform HMRC, no action is required and HMRC will not levy interest or penalties on the deferred amount, provided it is paid on or before 31 January 2021.

Many taxpayers will view this as a welcome interest-free cash flow support provision from HMRC.

However, please remember that the tax will still fall due – by 31 January 2021. If the option to defer the July payment on account is taken up, then by 31 January 2021 there would potentially be up to three tax payments falling due on this date, being - the deferred 2019/20 2nd payment on account; any balancing tax liability owed for 2019/20; and the 1st payment on account for the 2020/21 tax year.

Therefore, it is important to view the July tax deferral option as merely a matter of timing.

What if I choose to pay my tax in July 2020?

Individual taxpayers can choose to make the 2nd payment on account by 31 July 2020.

However, before instinctively logging into their online bank accounts to pay this second payment on account, I urge taxpayers to ask themselves a question; is this the correct amount to pay?

The payment on account system was originally devised as a method of spreading the financial hardship of paying a tax bill in two instalments across the year. However, if a tax liability for the tax year turns out to be lower than the payments on account made during the year, it can be quite galling to realise that you have overpaid an unnecessary amount of tax to HMRC. In addition, there can be a time delay by HMRC in processing repayments – perhaps the money would be better off staying in the individual's bank account, rather than with the Revenue? Especially given these unprecedented times.

The solution: have your 2019/20 Self-Assessment tax return prepared at the earliest opportunity.

If the overall tax liability for 2019/20 is less than the expected payments on account for the year, a claim can be made to reduce the 2nd payment on account and therefore reduce the payment required to be made to HMRC.

By preparing the tax return at the earliest opportunity, the actual tax liability for 2019/20 will be calculated, along with the potential reduction in the July payment (which cannot increase). This will also give the individual an increased amount of time to prepare or save for any tax due by the next payment deadline, being 31 January 2021.

If you require any advice on Self-Assessment tax payments, please contact your nearest Perrys office.