The self-assessment tax return Income Tax payment on account due by 31st July, 2020 is allowed to be deferred to January 2021 under the UK government’s COVID-19 pandemic support. Here, we discuss whether it should be as obvious choice as it seems.
- Your tax return should still be filed on time
- You do not need to apply for the deferment
- To take advantage, direct debit must be cancelled
- You will not be charged penalties or interest for the deferral period
- You don’t have to be self-employed to defer
Firstly, it should be noted that filing your tax return early does not mean you need to pay your Income Tax early, it can still be paid in January, 2021 should you decide to defer. However, filing early allows you to know what your total income tax bill will be sooner enabling longer to budget and plan your payment.
Deferring seems like the obvious option, the advantage of having some extra money to inject in the business to kick start trade or having an emergency fund should trade not improve. This may be attractive, as long as you have a plan on how you will be able to pay a double tax bill in January. January, which can be a slow month after Christmas (and a very long one waiting for pay day!) not forgetting the increase in expenditure in December. And, we have the usual unknowns intensified by the current coronavirus COVID-19 pandemic – how will the economy react over the coming months? Will interest stay low?
January is seen to most as ‘new year, fresh start’ so the consensus seems to be, if you are able to afford to pay in July, you should do so. Some think that if they pay now, it may cause issues with cashflow over the coming months. However, the less debt a business has, where possible, is more practical long term.
Some people will not be able to pay their tax bill now, therefore, the next few months should be used to plan how to pay the double tax bill in January. It is important to remember the late penalties and interest if you do not make the payment in January. If this is a possibility, it is advisable to contact HMRC as soon as possible and take advantage of their time to pay scheme.
Need help with your tax return?
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