Why these taxpayers shouldn’t defer their July HMRC payment
As a coronavirus emergency measure, the government announced that taxes due in July 2020 can be deferred to January 2021 for self-employed Brits who are suffering financially.
This £11bn cash flow boost “to give immediate support to businesses and individuals by keeping cash at their disposal during this extraordinary time of uncertainty” is automatic and no interest or penalties will be applied.
HMRC warned that taxpayers should think carefully about whether deferral is right for them. This is because the deferred amount will be due on 31 January 2021, the same date that any 2019/20 balancing payment and first 2020/21 payment on account will be due. As such, all three separate payments may be due all at once.
And tax and advisory firm, Blick Rothenberg said many people should pay their July tax bill as the measures are a deferral, rather than a relief which will have to be paid in January.
Andrew Sanford, a partner at the firm said there are three groups of taxpayers for whom taking the tax holiday may not be the right course of action.
He said: “If you are a partner in an LLP or partnership, and your firm makes your tax payments for you, then you are risking that the firm will be sufficiently solvent to make the payment in January. The tax liability is the responsibility of the individual, so if you have any concerns, you should really press for the tax bill to be paid in July.
“The second group of taxpayers are those who are ‘spenders’. They should bear in mind, that in the first three months of 2021, the self-employed will have to make not only two self-assessment payments but also make two VAT payments, catching up on the deferred VAT payment from earlier this year. This will require careful budgeting. For some, it may be simpler to pay the liability now if there is spare cash.
“Finally, there are a group of taxpayers, who may have either been unaffected or in an industry that has seen an increase in trade through the pandemic. They may simply feel it is not right to take advantage of the deferral.”
Sanford added that for those who are fearing double tax payments in January, they should consider filing tax returns early this year.
“Not only will it determine your tax liability for the tax year 2019/2020, but it will also be a sensible point to see if payments on account can be reduced for the 2020/2021 tax year,” he said.
This is because each payment on account is estimated, based on 50% of the previous year’s self-assessment tax bill and they are advance payments towards the current year’s tax bill.