Struggling taxpayers may well be able to mitigate the damage caused by lockdown by filling early tax returns.
Self-Assessment taxpayers, whose incomes fell in the 2020-21 tax year, may be able to reduce their next tax payment to HM Revenue & Customs (HMRC) on 31 July 2021, but need to act now by getting the information to their accountant.
A lot of taxpayers had a very different tax year in 2020-21 and may be due a refund or an adjustment to the second payment on account due on 31 July 2021.
Payments on account are determined by estimates based on past income, so providing updated figures from a bad year now could reduce the bill or even lead to a refund.
So far, taxpayers have been getting organised with 950,000 already having completed their 2020/21 tax returns with 63,500 filing their self-assessment on the first day of the tax year, HMRC has revealed.
‘Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you are self-employed).
You must make two payments on account every year unless:
- your last Self-Assessment tax bill was less than £1,000
- you’ve already paid more than 80 per cent 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. Payments are usually due by midnight on 31 January and 31 July.
If you still have tax to pay after you have made your payments on account, you must make a ‘balancing payment’ by midnight on 31 January next year.
Your bill for the 2019 to 2020 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).
The total tax to pay by midnight on 31 January 2021 is £2,700. This includes:
- your ‘balancing payment’ of £1,200 for the 2019 to 2020 tax year (£3,000 minus £1,800)
- the first payment on account of £1,500 (half your 2019 to 2020 tax bill) towards your 2020 to 2021 tax bill
- you then make a second payment on account of £1,500 on 31 July 2021.
If your tax bill for the 2020 to 2021 tax year is more than £3,000 (the total of your two payments on account), you will need to make a ‘balancing payment’ by 31 January 2022.
For many, however the past year has perhaps been the worst ever for them, so mitigating payments will ease the financial pressure.
Going forward it is likely that many taxpayers will also see a drop in profitability in the 2020/21 tax year.
Act now is our advice – please contact us for help.