Short answer: no. There is no obligation to pay the second payment on account for the 2019/20 tax year by 31st July 2020. This can be paid, along with any outstanding self-assessment tax liability, at any time before 31st January 2021.
Few areas of life have been left untouched by the Covid-19 pandemic and, to provide support for individuals, families and businesses, the UK Government has introduced several measures to lessen the financial impact of the crisis. Here’s how the deferment will work in practice for company directors, private investors, and the self-employed.
Payments On Account: The Basics
For most self-employed workers, the arrival of a tax bill after submitting their annual return is one of the least satisfying parts of the year, and can present some practical issues in managing their income. Payments on account – love them or hate them – were designed to support the self-employed by allowing them to spread their income tax payments over two installments, in January and July each year, with the balance paid by the end of the following January.
However, the Covid-19 crisis has haemorrhaged the income of many businesses, with even larger organisations expressing concern about their long-term viability, so measures such as the deferral of payments on account offer some reassurance for self-employed individuals.
What Should I Do To Arrange For Payments On Account Deferral?
For most of the self-employed, no action needs to be taken. Deferral of the second income tax payments on account for self-employed workers, due on 31st July 2020, is automatically applied and rescheduled until 31st January 2021. No application is necessary.
However, if the July installment is due to be paid by direct debit, it is essential to cancel the mandate with your bank as soon as possible. (For most self-employed workers, payments on account instalments are not paid in this way as a new mandate has to be set up each time.)
Can I Settle My income tax bill earlier than 31st January 2021?
Yes. However, bear in mind that the full outstanding liability for the 2019/20 tax year will coincide with the first payment on account due for the 2020/21 tax year – on 31st January 2021. This could mean a higher tax bill than normal, so it may be preferable for some businesses to settle their liabilities earlier, if possible.
It’s also worth bearing in mind that, if your business experienced a slump in demand during the Covid-19 crisis, the lockdown didn’t begin until close to the end of the 2019/20 financial year, so any loss of income may not impact on your tax liabilities until 2022.
Submitting your self-assessment return as soon as possible may offer some advantages if you choose to defer your payments on account until next January, as this will enable you to plan for a larger payment.
Seeking Professional Tax Advice
At David Howard, our specialists provide professional, up to date advice about tax matters for businesses and sole traders, including financial planning in the aftermath of Covid-19.