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If you’ve put up with restricted earnings during the COVID-19 pandemic, deferring your tax Payment on Account is a good idea to help you relieve the financial strain.
Payment on Account is essentially a method of paying your tax bill in two instalments. The first is done by 31st January – the normal tax payment deadline – and the second is done by 31st July.
Unfortunately, it’s not an optional method of payment. You’ll be enrolled into it automatically when you complete your Self Assessment.
If you’re self-employed, you’ll most likely have to pay your tax bill by Payment on Account.
Payment on Account is calculated based on your tax bill from the previous tax year. It’s basically an advanced payment to HMRC.
If it’s your first year of being self-employed, you’ll pay 150% of your tax bill – 100% of your bill in January and a further 50% in July. This is balanced out in the following year when you pay just 50% of what you owe in January.
So, the important bit. How do you defer?
HMRC announced earlier this year that everyone who’s done their Self Assessment for the 2018/19 tax year is eligible to defer their July Payment on Account. Even better news, you don’t need to apply for it. You can simply just not pay in July and the payment will be deferred until 31st January 2021.
We’d advise that you think carefully before taking this option. Whilst deferring may ease your immediate financial burden, remember that it could also double your bill in January – and in these uncertain times, that may be a risk.
That said, HMRC will let you pay your July bill at any point between 31st July 2020 and 31st January 2021 which could be a really useful way of spreading the cost.
To read more about deferring your Payment on Account, take a look at the HMRC website.