We have written extensively on Payment on Accounts, and as a small business owner or self employed individual you will be familiar with the term, especially as it involves upfront payments to HMRC in relation to your tax liability for a given tax year.
The second Self Assessment payment on account for the tax year 2018/19 is due imminently, by 31 July 2019. Are you prepared? You may not be aware that HMRC’s systems, due to a fault, have not requested payments correctly, and there is now much confusion on individual’s tax liability and what tax is due.
We look here at how to ensure you are safeguarding yourself from HMRC penalties and the process of making voluntary payments in place of payment on accounts, as a result of the HMRC system-wide issues.
For those individuals and small business owners, who pay their tax via Self Assessment, are due to make two instalments in a tax year, 31 January and 31 July. So for the 2018/19 tax year that ended on 5 April 2019, the second instalment or payment on account is due at the end of this month.
Unfortunately, there have been some issues with HMRC’s systems which meant that payment on accounts were not logged properly on individuals tax accounts and as a result, the usual letter statement of account from HMRC does not mention the second payment of account due on 31 July.
There has also been some reported instances where tax accounts are showing that individuals are due a tax rebate, so confusion reigns on what tax is due and by when.
Does that mean I am not due to pay tax this month?
In the first instance, we suggest speaking with HMRC or your accountant if you do not receive a statement of account or if your statement of account does not show the payment on account request as you would expect.
If a payment on account is not made by 31 July 2019, HMRC will penalise you and you will be charged late payment interest, so be warned.
If it does appear that you are due a payment on account, once clarifying with HMRC, you have the following options available to you:
- Pay all your tax due for 2018/19 in one go on 31 January 2020 without incurring any interest or penalties for not paying any payments on account.
This means you only pay what is owed for the 2018/19 tax year and you complete your Self-Assessment Tax Return as usual by the 31 January 2020 deadline. However, be prepared that your tax bill may be much higher than usual as you have not topped up this month with a second payment on account and you will also have the first payment on account for the current tax tear 2019/20 due.
- Another option is to make a voluntary payment to HMRC ahead of the January 2020 deadline for Self-Assessment tax returns. This is a particularly good idea if you know your full tax liability for the 2018/19 tax year. Be careful to advise HMRC of the additional voluntary payment as they may return the payment to you if they see no tax is due on their corrupt systems! To avoid this repayment, you should call HMRC on the Self Assessment helpline and ask them to set up the 2018/19 payments on account on your tax record, in line with the details submitted on your 2017/18 tax return.
So this is a good option if you have the cash flow now and would rather pay less in January 2020.
Word of warning: This option will only work well for you if you have paid the first payment on account in January 2019. If HMRC see a payment coming through voluntarily but also note the first payment on account has not been made, this will create a late payment interest charge and the voluntary payment will go towards paying off the first instalment.
You therefore need to think very carefully before you do this, as you might be better off instead setting the money aside in a separate bank account and paying it all in one go on 31 January 2020, as laid out in option 1 above.
Get your tax return done and budget for the correct tax payments!
We strongly advise you complete your Self-Assessment tax return for 2018/19 tax year as soon as possible so you have an idea of what tax is due for the year. You will then know what extra amount you need to budget to pay in January 2020, if appropriate.
Southside Accounting can help
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Written by Shaima Todd.