self-assessment-tax

If you are self-employed, you should take advantage of the UK government’s latest policy of supporting businesses and self-employed individuals during the Covid-19 pandemic. The government has allowed deferment of your second self-assessment payment on account for 2019-2020 that is due on 31 July 2020, without attracting penalties or interests.

You can not only defer your payment on account, but you can also choose how and when you delay the second payment for the tax year 2019 to 2020. You can also seek the assistance of tax and accounting experts like Initor Global to stay on top of all your tax obligations. Find out how this payment deferral will work and what your options are.

Impact of Covid-19 on Self-Employed People

The Office for National Statistics (ONS) reports that the self-employed are hit even worse than employees by the Covid-19 lockdown, in terms of their income. Almost a third of self-employed individuals have reported that they worked reduced hours during the first two weeks of the lockdown. The accumulated impact on income since the lockdown began is considered to be overwhelming.

The ONS investigated both personal and economic wellbeing and came to the conclusion that self-employed individuals had a greater chance of reporting a loss in their household income than employees. Some of the key findings by the ONS include the following:

  • 60% of self-employed individuals experienced a decline in their income during the initial phase of the lockdown
  • 22% of employees suffered income loss
  • 23% of self-employed individuals said that they had to fall back onto their savings to meet their living costs

A significant proportion of those surveyed said that their place of work faced closure.

New Self-Assessment Payment Due Dates

According to the latest update from the HMRC, self-assessment payments on account that are due on 31 July 2020 can now be paid up to 31 January 2021. The government has also made provisions to simplify the process for you. There is no need to make an application to the department. However, you will have to take steps to cancel your direct debit mandates.

You will still have to file your returns on time. HMRC has made it clear that deferring your self-assessment will not attract any interests or penalties during the deferral period. Given these options, you may still decide to make your payment by the normal due date in July 2020, if you can do so.

Who Needs to Make Self-Assessment Payments on Account?

Self-assessment Payments on account are advance payments that you need to pay towards your tax bill. This includes Class 4 National Insurance for self-employed individuals. You will have to make two payments annually if you meet the following conditions:

  • Your self-assessment tax bill was not more than £1,000
  • You have already paid over 80% of your tax owed, such as through your tax code

This mostly applies to self-employed individuals, but it may also apply to other taxpayers including landlords.

The HMRC has made it clear that anyone who defers this payment will have a significantly large accumulated payment to make before 31 January 2021. Once the deferral ends, you can expect the normal penalties, interests, and collection procedures that apply on missed payments. If you think that the impact of coronavirus is making it difficult for you to pay your tax by January 2021, you can directly contact the Time to Pay service of HMRC.

If you are unable to pay your self-assessment tax bill because of some other reasons, you can still contact the HMRC for help. If your tax bill is not more than £10,000, the HMRC may allow you to set up a Time to Pay Arrangement online. You can then pay your tax in installments.

Choosing to Defer Self-Assessment Payment

The HMRC allows you to defer your second payment on account due on 31 July 2020. Once you decide to defer your self-assessment payment on account, there is no need to inform the HMRC. Deferring payment doesn’t affect other COvid-19 support programmes that you may be entitled to receive from the HMRC.

When you decide to defer your second payment on account, you should also make the following payment by 31 January 2021:

  • The balance payment that may be due for the year 2019-2020
  • The first payment on account that is due for the year 2020-2021

It is recommended to check your payment for your next tax bill from your online account.

Key Points to Remember

If you are self-employed, you should know about the following points related to the deferment:

  • According to the HMRC, this deferral applies to all taxpayers
  • Everyone including the self-employed are eligible for the deferral on their taxes
  • If you don’t want to make a bigger payment in January 2021 and can afford to pay the July tax bill, it is recommended not to defer your tax bill due in July 2020
  • If you wish to defer payment and have already set a direct debit mandate, you should contact your bank to cancel the automatic debit
  • HMRC still requires you to file your self-assessment returns by the due date
  • It may be beneficial for you to file the 2019-20 return at the earliest. This can help you facilitate tax payment planning due in January 2021 and put any due refund into process.
  • Tax against capital gains is not included in these payments. It should be paid as part of the balancing payment

It should be noted that a very small percentage of taxpayers make their self-assessment payments by direct debit, as the system needs a separate direct debit mandate for different individual payments.

Claim to Reduce Your Payments on Account

If you know that your 2019-20 tax bill will be less than your tax bill for the previous year, you can make a claim to reduce your payment due on 31 July 2020. This is highly likely to be the case because most self-employed individuals and businesses can expect to see a drop in profits during the year 2020-21.

Your self-assessment payment on account for 2020-21 will be due in January 2021. You should monitor your position and make a claim if required.

Conclusion

The coronavirus (Covid-19) pandemic and the lockdown have adversely affected businesses, self-employed individuals, and employees in the UK. The UK government has announced a wide range of relief measures to make the financial situation easier for everyone that has been affected. If you are a self-employed person, it is recommended to follow the above-mentioned points and seek deferment of self-assessment payment on account. If you want to go smoothly through the process, it is best to get the help of experts like Initor Global.

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