Despite many self-employed business owners still facing lower sales due to Covid, HMRC continues to pursue taxes based on higher sales from the previous year.
In the absence of any agreement with HMRC, many taxpayers will end up paying too much tax in the year 2020/21 as the payments on account (due 31.1.21 and 31.7.21) are based on tax paid in 2019/20, i.e. before sales were affected by Covid.
Any outstanding tax for 2020/21 is payable by 31 January 2022 but by then it’s likely many taxpayers will have run into cash flow difficulties having overpaid tax out of much needed funds.
Says Curo’s head of tax Julia Gallagher “This is a real issue for a significant number of individuals who are doing their best to pay their taxes in full and on time. Many still believe they have no option but to meet the demands of HMRC by the usual due dates but that is just not the case in these unprecedented times.
The final balancing payment in Jan ’22 will reflect ‘Covid-affected’ profits for the 20/21 tax year, resulting in tax refunds for many. However, this will come too late for some taxpayers who could have done with the cash earlier.”
How to request lower payments on account and other ways to spread tax payments
Under the self-assessment system, taxpayers can ask to pay less in payments on account if their profits have reduced due to Covid. They may even be due a refund. This request can be made to HMRC online or by calling the HMRC Covid helpline on 0800 024 1222
More than 860,000 taxpayers have already requested they pay tax in monthly instalments to help ease cash flow issues and avoid a situation whereby they overpay tax. You can request a monthly instalment plan here.
Instead of waiting until 31 Jan to file your 2020/21 tax return, you could file it early which will trigger any tax refund earlier too. That way you won’t overpay tax and ensure the money sits with you in the business.
And don’t forget to include any grants received under the government’s Self-Employed Income Support Scheme (SEISS). These amounts are taxable and you should put cash aside to pay for any tax arising.
How we can help
We can help you make sense of all the changes and advise you on the various support available, plus ensure you remain tax compliant and optimise your tax position.
Please get in touch on 01527 558539 or email [email protected]