Back in March the Chancellor Rishi Sunak announced that self-assessment payments on account would be deferred from 31st July 2020 to 31st January 2021.
HMRC have recently sent out statements to tax payers showing nothing to pay this July and the new balance showing as due in January 2021. For many tax payers it may help with cash management to make the payment now, I certainly will be, you can make the payment in the normal way and the money will sit on account until January.
What is not very clear from HMRC’s communications is that despite the statement showing the second payment on account being due in January 2021, you still need to complete your tax return in the normal way which will result in a “Balancing payment” and a “Payment on account” due in January 2021 as well. This is causing some confusion with my clients because at first glance it appears that the HMRC statement reflects everything that will be due in January 2021.
The “Balancing Payment” due in January 2021 is the balance of tax due based on your taxable profits for the year to 5 April 2020, after taking account of the payments on account made in January 2020 and July 2020 (which many people are deferring payment of).
The “Payment on account” due in January 2021 is a contribution towards tax liabilities for the year to 5 April 2021. By default these are based on the taxable profits for the previous year. However, many business owners will be able to adjust this amount to reflect suppressed profits arising from the COVID pandemic.
Please bear this in mind, ensuring you complete your tax return in the normal way so that you can budget for the right amount due in January 2021. If you are concerned about your tax payments please do get in touch.
