Can I still defer my self-assessment pay on account?

As part of the Coronavirus support put in place by the government, anyone who is self-employed could choose to defer until January 2021 their second self-assessment payment on account that was due on 31 July 2020.

And if payment has yet to be made, HMRC is reminding people that they can still defer the second payment on account up to 31 January 2021, with no interest or penalty as long as the payment is then made by that date.

But paying the tax deferred on 31 January 2021, along with any other tax falling due at that time, could mean a massive tax bill next January,

So to alleviate the problem, the government has introduced time to pay measures. We have a separate article on this - Spread your tax bill over twelve months.

It may also be the case that if profits to 5 April 2021 have been affected adversely by Covid, then payments on account in January 2021 could be reduced.

Should you receive a Self Assessment statement from HMRC before 31 January 2021, it may still show the deferred July 2020 payment on account as due and payable now.

It may also show interest accruing if you have any payments on account. This interest will only apply to those other payments, not your deferred July 2020 payment on account.

Paying your tax bill

Whilst the deferred July 2020 payment on account can be paid at any time between now and 31 January 2021, HMRC has now made it easier for taxpayers to pay this in instalments.

Where the 2019-2020 tax return is filed early, it will be clear what payments are owed before the 31 January 2021 payment due date and you can set up a Time to Pay instalment arrangement with HMRC after 48 hours of submitting the form..

This can be done entirely online without having to contact HMRC where the tax owed is £30,000 or less.

Another advantage of the Time to Pay scheme is that late payment penalties can be avoided, as long as the arrangement was entered into before the penalties become due and all tax owing under the arrangement is paid on time.

Interest, however, continues to be payable under Time to Pay instalments.

Class 2 National Insurance

Time to Pay arrangements may result in your 2019/2020 Class 2 National Insurance contributions being paid after their due date of 31 January 2021, which could affect certain contributory benefits claimed.

Where this is the case, HMRC can be contacted so that it can allocate monies already paid for 2019/2020 against the Class 2 contributions owing. There may be a small amount of interest if this is done, but contributory benefit claims should be protected.

Pay through the PAYE code

If taxes are paid on employment or occupational pension income through the PAYE system and the 2019-2020 return is submitted online by 30 December 2020, HMRC can be requested to collect any tax owing through an adjustment to the PAYE coding.

Check to see if you’re eligible through your tax code.

Contact us

As soon as you become aware that you may not be able to pay your Self Assessment tax. please contact your Bishop Fleming advisor to discuss the matter. We can advise on the most appropriate action to take,

This may mean setting up a Time to Pay instalment arrangement for you. Where such an arrangement already exists, HMRC can be asked to amend that arrangement to include the deferred July 2020 Payment on Account and any other Self-Assessment payments becoming due on 31 January 2021.

Reducing 2020-2021 payments on account.

Payments on Account are based on the previous year’s tax bill.

If your financial situation has been impacted by coronavirus, you may have a reduced tax liability arising for the 2020-2021 tax year, so you may want to reduce your 2020-2021 payments on account.

For more information, please contact your usual Bishop Fleming advisor.

For further help, please check out our Business after COVID-19: Transition Knowledge Hub.