Any self-employed sole trader or partner in a business knows how crucial sending off a completed self-assessment for tax is. Of course, once you have done this, you are then faced with the prospect of paying your tax bill. Although this might sound easy, making your self-assessment payments (including any Class 2 National Insurance contributions) can be confusing at times.
The impact of the ongoing COVID-10 pandemic has also seen some changes brought in by the UK Government on how people can pay. But just how can you make these payments to HMRC in 2021?
Deferment of July 2020 payment until January 2021
One of the Government's COVID measures for business was giving self-assessment taxpayers an option to defer their payment on account in July 2020 until 31st January 2021. For those who did choose to take this option up, it meant that 3 payments were due at the end of January 2021. These were:
- July 2020's unpaid payment on account
- 2019/20's balancing amount
- the first payment on account for 2020/21
What if you could not make these payments?
If the ongoing impact of COVID meant you couldn't make the above 3 payments as planned, it was possible to set up an instalment plan to pay instead. While these plans come with interest attached, they make it possible to spread tax payments out into easier monthly amounts. For those who owe up to £30,000, this can be done online without having to contact HMRC. For anyone who owes more than this, you would have to contact HMRC to set up a plan.
Known as 'Time to Pay' plans, you would usually pay off your July 2020 deferred payment on account to begin with. The knock-on effect of this is that your Class 2 National Insurance payments would then be paid after the initial due date of 31st January 2021. It is key to note that this late payment of Class 2 National Insurance could have a negative impact on certain contributory benefits. If this is something you think would be a problem, contact HMRC immediately to resolve with them.
If you enter into Time to Pay arrangements by 2nd March 2021, you can avoid any late penalty charges on unpaid tax and Class 2 NI contributions. If you pay all you owe as set out in your plan, you would also avoid the 6 and 12-month penalty charges.
Direct debit and tax code payments
In addition, one of the popular methods of payment is direct debit. If you deferred your July 2020 payment on account and cancelled your normal direct debit as a result, you would need to set it up again first.
There is also the option of paying via your tax code in some cases. This applies to those who pay tax on an occupational pension or an employment pension via PAYE. As long as you have submitted your 2019/20 return, you can request that HMRC collect what is owed by adjusting your tax code.
Let SRB Associates help with tax and self-assessment returns
There is no doubt that self-assessment returns, NI contributions and keeping track of payments can be tricky. When you also consider that you can reduce your 2020/21 payments on account if COVID seriously affected your business, this is even more true.
If you are looking for an expert and impartial accountant in Melton Mowbray to help, why not choose SRB Associates? Complete the form on our website to request a callback today and see how we can make dealing with tax easier.