Self employed can defer their tax payments

Self-employed individuals who have been impacted by Covid-19 have the option to defer for six months their second self assessment payment on account (POA) due on 31 July 2020.

You can still make the payment by 31 July 2020 as normal if you are able to do so.

HMRC's June 2020 Self Assessment statements show 31 January 2021 as the revised due date for paying the July 2020 POA.

This is because HMRC updated its IT systems to prevent taxpayers incurring late payment interest on any July 2020 POA paid between 1st August 2020 and 31 January 2021.

HMRC will not charge interest or penalties on any amount of the deferred payment on account, provided it is paid on or before 31 January 2021.

You do not need to tell HMRC that you’re deferring your payment on account.

You must make your second payment on account on or before 31 January 2021 if you choose to defer. Other payments you may have to make by this date include any:

• balancing payment due for the 2019 to 2020 tax year
• first payment on account due for the 2020 to 2021 tax year

If you want to pay in full

You can pay your second payment on account bill in full any time between 31 July 2020 and 31 January 2021 using the online service.

If you want to pay in instalments

You need to contact HMRC if you already have overdue tax which you’re paying through a Time to Pay instalment arrangement and want to include your second payment on account in that arrangement.

If you do not have other overdue taxes, you can make your payment in instalments any time between now and 31 January 2021 by setting up a budget payment plan.

Payments made by Direct Debit

If you choose to defer and normally make your payments on account by Direct Debit, you should cancel your Direct Debit as soon as possible so that HMRC will not automatically collect any payment due.

It can be set up again later on.

Tax deferment consequences

A consequence of deferring the tax until January 2021 means that it could have to be paid at the same time as other tax bills next year.

In addition, there will be a time delay for the self employed before they see any actual reduction in their tax liabilities due to reduced covid-19 income falling in the tax year to 5 April 2021, which is reported in January 2022 and on which tax is paid in January/July 2022.

Where an accounting year/period ends early in the tax year (e.g. 30 April), that tax will move to 2023. So there is a long term cash flow issue that will need to be addressed.

The first payment on account for 2020/2021 is 31 January 2021, when submitting the tax return for 2019/2020. The second payment on account will be on 31 July 2021.

What a self employed person will need to do is apply for reduced payments on account for the tax year 2020/ 2021 in the tax return sent in by 31 January 2021.

If you would like to discuss how your tax liability may be affected, please contact your usual Bishop Fleming advisor.

Check out our Business after COVID-19: Transition Knowledge Hub for more guidance and advice on managing the pandemic.