Reduce your January tax payment

16 January 2021

This year, more than usual, settling the upcoming 31 January self-assessment tax payment may be a challenge – especially if you have chosen to defer your July 2020 tax payment or have suffered a large drop in income. The good news is that there are ways to lighten the load.

Claims to reduce 2020/21 tax payments

For many people, income levels for 2020/21 will be lower than those for 2019/20. This may include:

  • the self-employed;
  • those who received furlough payments;
  • those who had prolonged periods of illness; and
  • those with substantial dividend income from companies hit by the pandemic.

If your income has fallen materially, the level of payments on account due in January (and based on the 2019/20 income) is likely to be excessive. 

If you are in this position, now is the time to review your likely total income for 2020/21. Using this figure, the tax due next year can be estimated , and a claim made to HMRC to reduce your payments on account to a more realistic level. If payments are reduced too much, interest would be charged on any underpayment, but no penalties would apply provided reasonable care has been taken in calculating the relevant figures.

Deferred payments

Many people accepted the option to defer their 31 July 2020 tax payment to 31 January 2021. If you did this, you potentially now need to pay:

  • 2019/20 second payment on account
  • 2019/20 balancing payment
  • 2020/21 first payment on account

Subject to claims to reduce payments, that means paying a whole year’s tax in one go, with another half-year payment due in six months’ time. 

Fortunately, again help is available, and it’s possible to spread the load by agreeing ‘time to pay’ arrangements with HMRC.

If the amount due is no more than £30,000, you have no other payment plans or debts with HMRC, your tax returns are up to date and it’s less than 60 days after the payment deadline, deferred terms can be agreed online via the Government Gateway.

If you are not eligible for an online time to pay arrangement, you may be able to come to an agreement by contacting HMRC’s self-assessment payment telephone helpline.

As long as you comply with the agreement, no late payment penalties will be charged, only interest.

Penalties – some good news

Whilst HMRC will continue to raise the minimum £300 fines for tax returns which are six and then twelve months late, it has agreed that for late 2018/19 tax returns, it will not collect the £10 daily penalties that normally would have applied for returns submitted more than three months late. 

This is good news, but there is no sign this approach will be extended for 2019/20 tax returns, so returns should still be filed on time wherever possible to avoid an initial £100 late filing penalty and the further penalties described above.

To summarise, if you are worried about your tax payments, please talk to us – HMRC is open to discussion about spreading tax payments over a longer period and we may be able to reduce payments on account as well. If you address the issue now you will save a lot of stress and worry later. 

For more information, please get in touch with Andrew Robins, Sarah Saunders, or your usual RSM contact.