So here we go again.
News of the latest lockdown will only have increased people’s money worries.
Self-assessment tax bills are due at the end of the month, and although in an ideal world, you have put the money to one side for this- as we know, we are in far from an ideal world at the moment.
In addition to the January 2021 normal payment, many people deferred their July 2020 payment so this is also now falling due to be paid.
So what can you do if you are concerned about paying your tax bill by the end of the month?
- Review your payments on account.
Payments on account are payments due at 31 Jan 21 and 31 July 21 on account of your 20/21 tax bill, and are automatically calculated at 50% of your 19/20 tax, based on the assumption that your profit for 2021 will be similar.
Obviously the period since April 2020 has been a very different year for many businesses, and profits may well be much lower. It could therefore be possible to reduce your payment on accounts and base them on these lower figures.
If you can provide your accountant with an estimate of your figures for the current tax year, they will be able to advise if you can reduce your payment on account and ask HMRC to do this for you. If you do your own tax return, you can ask HMRC to reduce your payment on account by logging into your online account.
You do need to include any SEISS income received when reviewing your 20/21 income levels, as this income is fully taxable.
- Set up a payment plan with HMRC
Self-employed taxpayers can apply to pay their tax bill in instalments. HMRC are allowing you to pay your January bill over 12 months using the Time to Pay service. This can be set up online without the need to speak to HMRC.
You need to have submitted your tax return for year before you apply, and have no other outstanding returns, tax debts or payment plans in place with HMRC.Your debt needs to be under £30,000 and you can decide how much you want to pay now and how much you want to spread over the year. HMRC will still add interest to the amount outstanding but this does allow to manage your cashflow over the next 12 months.
Click here to set up your time to pay.
If you don’t agree time to pay arrangements with HMRC and fail to pay your tax on time, interest and penalties will be charged.
The first penalty is 5% of the tax due is your payment is more than 30 days late, with a further 5% if the tax is still not paid after 6 months. HMRC have not waived penalties due to COVID-19 or provided any extension to the filing deadline as yet.
Whatever you do, don’t bury your head in the sand and do nothing. As long as your return is filed, setting up a payment plan is simple and will enable you to manage your finances over the next 12 months.
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