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Claim to reduce payments on account

4 September 2020, Advocates, Artists, Barristers, Creative Industries, General, Musicians, Sole Traders

Reduce your income tax payments on account to HMRC

You can reduce payments on account to HMRC if you expect your profits to be lower in the year to 5th April 2021.  Most sole traders will find that their taxable profits will be lower this year due to the effects of the COVID emergency.  If you submit an application online before 31st January 2021 you can reduce these payments due on 31st January 2021 and 31st July 2021.

Claim to reduce payments on account

Payments on account

‘Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).

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. Payments are usually due by midnight on 31st January and 31st July.

Because of coronavirus (COVID-19), you can delay making your second payment on account.  You’ll not be charged interest or penalties as long as you pay before 31 January 2021.

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 following the end of the tax year being assessed.

Claim to reduce payments on account online

Use this form to apply to reduce your Self Assessment payments on account if:

  • your business profits or other income goes down
  • the tax relief you are entitled to goes up
  • tax deducted at source is more than the previous tax year

From your HMRC / Government Gateway online account select Self Assessment:

HMRC online account - Self Assessment

On the Self Assessment page you will be able to select “Claim to reduce payments on account”

Claim to reduce payments on account link

Before you start

You must claim by 31 January following the end of the tax year.
To complete this form you will need at least one of the following:

  • Self Assessment Unique Tax Reference
  • Employer PAYE reference

You can’t claim online for someone else.
You can track this form in your personal tax account

HMRC Self Assessment Details

Unique Tax Reference (UTR)

This is a 10 digit number you received when you registered for Self Assessment, like 1234567890. You can find it on your tax return, statement of account, or any Self Assessment calculations.
You will need to confirm your address.  This is the address that HMRC has on file for you.  If you moved house recently, check your details in your HMRC online account first.

Claim details

The following are valid reasons to reduce payments on account:

  • Business profits are down
  • Other income has gone down
  • Entitled to more tax allowances and reliefs
  • Tax deducted at source is or will be more than it was in the previous tax year

State the amount you want to reduce each payment on account to.  Each reduced payment on account should be half of the net Income Tax and Class 4 NICs you expect to have to pay for the tax year.

To reduce your payments on account by post

To apply by post send form SA303 to your tax office.

If you overpay or underpay

You might pay the wrong amount if your tax bill is higher or lower than you expected.

If you overpay, HMRC will send you a refund.

If you underpay, you’ll be charged interest.  Any claim to reduce your payment on account must be made in good faith.

Where a taxpayer’s circumstances change significantly from one year to the next, they can make a claim to reduce or cancel the payments on account.  The revised payments should reflect the taxpayer’s views on what payment on account, if any, are due for the current year.

Penalty for false claim to reduce payments on account

A penalty can be charged where a taxpayer, fraudulently or negligently makes an incorrect statement in connection with a claim.  See the HMRC Enquiry Manual EM5125 for more details.

Where enquiries show the claim to be excessive HMRC will consider, in appropriate cases, whether penalties may be due.  Appropriate cases are those where

  • the false claim was particularly blatant, for example, there were no facts at all that could reasonably have led the taxpayer to believe that a reduced payment was due, or
  • a taxpayer has systematically and regularly made unjustified claims to reduce payments, and
  • the reduction was large both in absolute terms and in relation to the true liability.

The maximum amount of the penalty is the difference between:

  • the amount that would have been paid but for the incorrect statement, and
  • the amount of the payments on account actually made.

 

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