Taxpayers in the Self-Assessment System May Not Need to Pay on HMRC

Taxpayers in the self-assessment system required to make a payment on account HMRC by 31st July may not need to do so, said leading tax and advisory firm Blick Rothenberg.

Robert Salter, a director at the firm, said: ‘Taxpayers in the self-assessment system will be aware that HM Revenue & Customs may be expecting them to make a 2nd Payment on Account (POA) in respect of their estimated 2020–2021 UK tax liability.’

‘However, those taxpayers affected by COVID-19 should consider closely whether it is necessary to make this POA now, especially as these POAs will – in the first instance – be based on the tax liabilities which arose for the year ended 5th April 2020.NAS the 2019–2020 UK tax returns were not – in the main – impacted by the COVID-19 Lockdown, many self-assessment taxpayers may find that their 2020/2021 income is much lower than their earnings for 2019/2020.

He added: ‘While care needs to be taken in this regard – e.g., income paid to taxpayers via furlough or the self-employed income support scheme (SEISS) needs to be included as taxable income, taxpayers who have suffered a reduction in their taxable income during 2020/2021 tax year, do have the opportunity to reduce the POAs which are due by 31st July formally. In appropriate cases, it may be correct to reduce these July POAs to £Nil.’

‘However, it is important for taxpayers to properly assess any claim to reduce their POAs – rather than just, for example, ignoring the POA deadline and not making any additional POA at this stage. Self-assessment taxpayers need to review their estimated 2020/2021 taxable income after allowing for any appropriate deductions that might be available. If appropriate, formally apply to HMRC for a reduction in the POAs, which are payable.  Such applications can be made over the phone, via post (with Form SA303), or for those taxpayers who have an HMRC tax account online.’

‘If taxpayers overestimate any claim to reduce their POAs, they could typically be liable to interest on the late paid tax – i.e., the amounts which could have been made as POAs and which are actually only settled as part of the overall tax return submission and final payment process.

Robert concluded: ‘The pandemic and the associated lockdowns have caused real difficulties for many self-employed or those with income from holiday or rental lettings.  Hence it is important from a cash flow perspective that such taxpayers do not tie up significant tax amounts with HMRC on a ‘needless basis.’

‘While unnecessarily paid POAs would be repaid to the individuals in due course, HMRC is presently experiencing significant service pressures because of COVID-19, and it could be several months before any excessive POAs are refunded to the individuals concerned. Therefore, taxpayers need to carefully consider what POAs – if any – they should make at this point.’