This Friday will see as many as 10 million taxpayers scrabbling to make their ‘payment-on-account’. This July 31st deadline affects company directors, the self employed and higher rate taxpayers.
HMRC sent out reminder letters last month to those affected by the payment deadline. But there is concern that many taxpayers will miss the deadline this year, either because they cannot afford to pay or because they simply forget - a problem that has been exacerbated by many businesses laying off their accountants in an effort to cut their outgoings.
But missing the deadline can result in significant costs. If you fail to make your payment on time you will immediately incur a 5% penalty. Meanwhile interest will start to accrue on your outstanding balance.
What is the payment-on-account?
If you filed a self assessment in January and it was not your first, you would probably also have had to make a payment in advance for this year’s tax bill. This is an estimated sum based on your previous payments, and can fluctuate from year to year. It is paid in two instalments, the second of which is due this Friday.
The purpose of payments-on-account is to spread your tax payments over the year, rather than being hit with a huge bill after your self-assessment. You will have to make a payment if your tax for last year was more than £500.
What should I do if I can’t afford to pay?
If you cannot make the required payment on Friday, it is vital that you do not just ignore it. This can very quickly lead into a spiral of penalties and interest payments that will ultimately end up landing you with an even larger bill that you still cannot afford to pay.
That said, HMRC recognises that many more taxpayers are struggling with cashflow this year and they have made arrangements to accommodate this. If you simply don’t have the money to pay your bill you should phone the HMRC helpline on 0845 366 1204 to discuss deferring your payment. If this is allowed, you will not be charged a penalty and you will not receive follow-up letters from the taxman, but interest will still accrue on the outstanding balance.
What if my income is less this year than it was last year?
Again, HMRC recognises that this is likely to be the case for many self-assessment taxpayers. If your income has gone down this year you should ask HMRC for Form SA303. This gives you the opportunity to explain your ‘change of circumstances’, and state that you will be making a smaller payment than previously thought. Given the tight deadline, you should do this online if possible; after logging into your online self-assessment account click on ‘Customer Services’, go to the ‘Request Us’ menu and click on ‘Reduce your payments on account’. You can also find out exactly how much you are currently expected to pay by logging in to your online self-assessment account.
If you cannot pay, or if you think you should not be paying as much as is expected, you have a very short period of time in which to act. Remember that missing the deadline will result in significant financial penalties. Keep on top of your tax payments now and you can avoid larger bills in the future.