Is Your Tax Payment Really Necessary?
Image by Gerd Altmann
Sarah Saunders personal tax manager at audit, tax and consulting firm RSM asks: Is your tax payment really necessary?
On 31 July the second tax payment on account for 2020/21 is payable. Unless someone has already submitted their 2020/21 tax return, the amount due is initially based on their 2019/20 tax liability. Given the radical effects of Coronavirus on many people’s income, it is likely that the initial figures will be too high, and their 2020/21 income will contain markedly less self-employment profits or dividend payments than usual.
The good news is that, if this is the case, people are not required to pay the full amount now and await a refund in the distant future. There are two ways to approach this.
First, if they submit their 2020/21 tax return this will reset the payments on account to the correct figures for the year.
Second, if they are not yet able to complete their return, they can roughly estimate the correct tax and make a claim to adjust the payments on account to a more reasonable figure.
If they get it wrong, they will be charged interest on any tax underpaid and will need to pay the extra tax. Overall, this offers a huge cashflow advantage to taxpayers who have been hit by the pandemic and anyone who thinks it applies would be wise to review their figures as soon as possible.
If there are business losses for current or later accounting periods, people should also look at the possibilities for claims of loss relief to reduce liabilities or even generate repayments.
If none of the above is any help, and a taxpayer is facing difficulties in making payments, they should contact HMRC and arrange to pay by instalments on a Time to Pay scheme.
This has been a difficult time for everyone. Let us hope the above allows affected businesses to have one less concern. It would be a shame for anyone to strain their finances by paying more tax than is necessary.