Self Assessment Second Payment on Account Due 31 July 2021

Posted on 26th July 2021 by David Rudd

self assessment advice

For those taxpayers that complete a personal tax return, “Payments on account” are advance payments towards your tax bill for the next year. Read this article for self assessment advice.

You have to make 2 payments on account every year unless:

  • your last Self Assessment tax bill was less than £1,000
  • you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings

Each payment is half your previous year’s tax bill, because HM Revenue & Customs make a crude assumption that your next year’s tax bill will be the same as the previous years.

Payments are usually due by midnight on 31 January and 31 July.  If you still have tax to pay after you’ve made your payments on account (for example because your income was higher than expected), you must make a “balancing payment” by midnight on 31 January next year.

 

Could you reduce your 31 July 2021 payment on account?

The self-assessment tax payment you are due to make by 31 July 2021 is presently based on the profits/income you earned during the 2019-20 tax year.  As we all know, COVID disruption started in early 2020. Accordingly, many of us have seen a reduction in taxable income in the following tax year 2020-21.

In which case, could you have payments on account rebased on what has happened in 2020-21 rather than the previous tax year? The answer, of course, is yes you can.

 

Let’s complete your tax return sooner this year

The most effective way to rebase your 2020-21 tax payments on actual data is to complete and file the 2020-21 tax return before 31 July. In this way we can apply – as part of the tax return submission process – to reduce payments on account due 31 July 2021.

 

But what if you can’t file your tax return before 31 July 2021

If you can produce a realistic estimate of your income for 2020-21, we can lodge a formal request to HMRC to reduce your tax payments for 2020-21 without actually filing your tax return. The downside of this process is that if your subsequent tax return shows higher income levels than the estimate, then interest charges may be applied by HMRC.

 

What about the first payment on account for 2020-21 made 31 January 2021?

If your taxable income for 2020-21 is lower than that for 2019-20, then any payment on account you may have made in January 2021 may have been too much. By rebasing your income on actual earnings for 2020-21, and if applicable, applying for both payments on account due January and July 2021 to be reduced, any overpayment made in January will automatically be included in the recalculated payment due 31 July.  In some cases, this may result in a tax refund.

 

What to do next

If you have suffered a reduction in income – for 2020-21 compared to 2019-20 – call us now so we can get organised. There is no point in paying over hard-won cash reserves to HMRC if it is unnecessary. 

Source material: https://www.gov.uk/understand-self-assessment-bill/payments-on-account

 

Finally…

The Steven Burton & Co team are here to help you.  If you need a sounding board, some advice or a steer in the right direction, then please don’t hesitate to get in touch.

This material has been prepared for informational guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, the information contained may not be comprehensive. Furthermore, it is not intended to provide, and should not be relied on for, tax or accounting advice. Steven Burton & Co Limited can not accept any liability for any errors or omissions or for any person acting on or refraining from acting on the information provided.

David Rudd

David is an Accountant with over 15 years’ experience in helping a large number of different business owners in numerous sectors from consulting agencies to every area of construction you can think of.

At home dealing with numerous different types of accounting software from Xero to QBO and everything in between.  David is always on the lookout for new technology to help business owners to create more time for themselves and their teams.

With a healthy ambition of never resting on the results of yesterday, David is at his best when working with ambitious business owners who want to improve their businesses for eventual sale.

In his spare time, David is often found cheering on his two boys at football, building Lego (which he pretends is for his boys) or watching the latest TV series on Netflix.

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