The payments on account deadline is on 31 July 2021, when some self-employed workers are due to pay half of their estimated tax for the 2020-21 tax bill.
What you owe will be based on the profit you reported in your 2019-20 tax return.
Here, Which? reveals five things self-employed workers should be aware of if they pay tax by payments on account.
1. HMRC must receive your payment by 30 July
While the payments on account deadline is 31 July, as this falls on a Saturday this year it means you’ll need to be even more organised than usual and get your payment to HMRC the last working day before, which is Friday 30 July. If you’re paying by Faster Payments, debit or corporate credit card, then you won’t need to worry about bringing your payment forward.
Note that different forms of payment will take different amounts of time to go through. For instance, paying by CHAPS, through your online bank account or at your bank or building society will get the payment to its destination on the same day or the next day. But, paying by Bacs or by cheque in the post can take around three days.
With this in mind, you should make your payment with time to spare to ensure that HMRC receives it.
HMRC doesn’t take credit card payments for tax from individuals, and you can no longer pay your tax bill at the Post Office.
If you don’t pay on time, you’ll be charged interest on the outstanding amount owed and HMRC currently has this set at 2.6%.
- Find out more: late tax returns and penalties for mistakes
2. There’s no automatic deferral this year
In order to help self-employed workers during the pandemic, the government automatically deferred last year’s 31 July payments on account deadline.
However, this meant that the tax owed was still owed by 31 January 2021.
This measure is not in place this year, so your tax should be paid as usual. However, this may be trickier than usual for those who took out a Time to Pay arrangement for their 2019-20 tax bill. This split the tax they owe into smaller payments, but means that many people will have to find the funds to pay this off, as well as the tax owing for payments on account.
If you’re struggling to pay your tax bill, contact the Payment Support Service on 0300 200 3835, which may be able to come up with a payment solution.
You’ll need to have your UTR number and bank account details to hand, know the amount of tax you’re unable to pay and the reasons why you can’t pay it, what you’ve done to try and get money to pay the bill, as well as details on how much you can pay and how long you’ll need to pay the rest of the bill.
3. You can apply to reduce your payment…
If you know your profits in 2020-21 are less than in 2019-20, you can apply to reduce your payments on account. You can either fill out form SA303 and send it to your local tax office or log in to your online tax account and visit the ‘Reduce payments of account’ section.
You won’t need to provide evidence that your tax bill will be lower. However, if you reduce your payments on account and it turns out that you owe a much higher figure, HMRC could charge you interest on the difference.
4. …But don’t forget about SEISS grants
If you’ve claimed any of the government’s Self-employed Income Support Scheme (SEISS) grants between 6 April 2020 and 5 April 2021, these will make up part of your taxable income for the 2020-21 tax year, and therefore you’ll be charged income tax and National Insurance on what you’ve received.
This comprises any of the first three SEISS grants; the fourth and fifth grants will make up part of your 2021-22 income.
You’ll need to factor this in if you apply to reduce your payments on account, combining it with any other income you’ve received to calculate whether or not you’re paying too much tax.
As the grants only made up to 80% of an individual’s average earnings, and there were several weeks between each payment, there is concern that many people won’t have been able to set the money they owe for tax aside. So, again, if you’re struggling to pay your tax bill, contact HMRC’s Payment Support Service as soon as possible.
- Find out more: SEISS explained
5. It’s a good idea to submit your return early
Given the amount of upheaval there’s been over the past 18 months or so, it’s a good idea to get as organised as possible with submitting your next tax return.
By now, you should have received all of the documents you need to file. Doing this early means that you’ll avoid any late fines, you may be able to get a tax refund earlier – if you’re due one – and you’ll also have plenty of time to plan your next tax payment, which will be due on 31 January 2022.
The Which? tax calculator can help with your next tax return. The jargon-free and easy-to-use online tool can tot up your tax bill, suggest any expenses you may have forgotten and it can submit your return directly to HMRC.
What is payments on account?
After being self-employed for a full year, you may be asked to start paying tax in advance through the payments on account arrangement.
This involves making two equal instalments by 31 January and 31 July, which will be based on what you made in the previous tax year.
However, if it turns out that you made more than you did the year before, you’ll have to make a balancing payment in the following January. If you made less, HMRC should issue you with a refund and your payments for the next tax year will be reduced.
- Find out more: how to file a self-employed tax return