Personal tax returns must be filed by 31st January following the end of the tax year. For the tax year ended 5th April 2019 tax returns were required to have been filed by 31st January 2020.
You have to make 2 payments on account every year unless:
Each payment is half your previous year’s tax bill. Payments are normally due by midnight on 31st January on the tax return deadline and 31st July later in the year.
If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by midnight on 31st January the next year.
If payments on account were required from your 2018/19 tax return, the second payment to HMRC would have been due on 31st July 2020. Following an announcement by the UK Government on 20th March 2020, the self-employed will have no payments due in July 2020. This payment has now been deferred to 31st January 2021.
The scheme will be applied automatically to all self-employed workers. You do not need to let HMRC know that you are deferring your payment. No penalties or interest for late payment will be charged in the deferral period from 31st July 2020 to 31st January 2021.
In the absence of any further relaxations, any payments due in July 2020 will still be payable in January 2021. This will mean that your whole tax bill will fall due in one instalment. If payments on account haven’t been scrapped by January 2021, you could find that you have 150% of your tax bill to pay in one go.
Our recommendation is to file your 2019/20 tax return as soon as possible after 5th April 2020. This will give you time to plan your tax bill and if your income is less in the tax year to 5th April 2020 you might find that your tax payment could be entirely eliminated.
Any payments on account calculated in your 2019/20 tax return can be reduced to take account of reduced profits in 2020/21. Even if HMRC persist with their system of payments on account, you might find that you can arrange to have no income tax payments due in July 2021.
Filing your tax return might not be the top of your list of priorities, but with enforced time at home you could use some of this period to get your tax return out of the way. You won’t be able to start your return until after 5th April, but you should have access to all the information you need for your tax return in the next few months and can file it online.
After the return has been filed, you will know your tax bill due in January 2021. This will give you time to plan your future payments on account and hopefully eliminate them altogether.
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