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Payment on account deadline looms for self-employed

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Written by: Emma Lunn
28/07/2021
There are fears that self-employed workers may be at risk of not being able to pay their tax bills due to fluctuations in income due to the pandemic.

Payments on account are tax payments made twice a year by self-employed self-assessment taxpayers to spread the cost of the upcoming year’s tax.

If you file a self-assessment tax return, your tax bill was more than £1,000 last year, and less than 80% of your income is taxed using PAYE, you’ll need to make your second payment on account for the 2020/21 tax year by 31 July (the first is paid on 31 January).

This second payment covers the second half of tax for 2020/21. The bill will be based on the tax you paid pre-pandemic in 2019/20, and you’ll be assumed to have earned something similar in both years.

However, thousands of people will still be catching up with payments for the previous tax year through a ‘time to pay’ arrangement, or struggling with their budget due to a fluctuating income during the pandemic.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “If you’re self-employed, there’s a good chance you spend a big chunk of the year dreading the tax bill due on 31 January. Meanwhile, a similar payment, due on 31 July, flies under the radar. This year in particular, millions of people risk being unprepared.

“It’s always terrible timing to have to find this chunk of cash during the summer holidays, which can be one of the most expensive times of year. The pandemic has eased this pressure slightly, because far fewer of us are going away. However, it has piled a heap of new pressures on people making their payments on account – from managing income fluctuations to accounting for the self-employed grant and dealing with the fact that so many people will still be paying off their tax bill from the year before.”

If you earned less in 2020/21 than a year earlier, it’s not too late to apply to reduce your payment on account. You can do this through the Government Gateway or by completing a paper form and sending it to the taxman.

An estimated one in six people make mistakes on their tax return which mean they pay too much tax. If you’ve paid too much in any of the past four years you can correct your tax return, and may be due a refund. If you’re within 35 days of a payment on account being due, HMRC will cut your payment on account instead of issuing a refund.

James Andrews, senior personal finance editor at money.co.uk, said: “If you are still struggling to pay following the reduction in payment, there are plenty of proactive steps you can take to fix the issue; from prioritising your debts, speaking to your creditors, and setting a budget for yourself.

“On this, be sure to track your spending and keep a list of all the different amounts you owe, such as credit card bills, car finance payments and any BNPL (buy now pay later) deals you may have taken on other goods.

“In addition, if you are still struggling with debt, there are services available that can provide independent, impartial advice, such as StepChange Debt Charity, Citizens Advice or the National Debtline.”

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