Determine COVID effect on profits for 2020-21 and if lower than previous year reduce tax payment due 31 July 2021.
Many of us have been personally impacted by the COVID outbreak, financially and some health-wise. This alert is being sent to all our clients that submit a self-assessment tax return and are due to make a second payment on account for the tax year 2020-21 on or before 31 July 2021. You may have an opportunity to reduce how much you need to pay.
How have you been affected financially by COVID disruption?
The self-assessment tax payment you are due to make 31 July 2021 is presently based on the profits/income you earned during 2019-20. As we all know, COVID disruption started early 2020. Accordingly, many of us have seen a reduction in taxable income in the following tax year 2020-21.
In which case, could you have payments on account rebased on what has happened in 2020-21 rather than the previous tax year? The answer, of course, is yes you can.
Let’s complete your tax return sooner this year
The most effective way to rebase your 2020-21 tax payments on actual data is to complete and file the 2020-21 tax return before 31 July. In this way we can apply – as part of the tax return submission process – to reduce payments on account due 31 July 2021.
But what if you can’t file your tax return before 31 July 2021
If you can produce a realistic estimate of your income for 2020-21, we can lodge a formal request to HMRC to reduce your tax payments for 2020-21 without actually filing your tax return. The downside of this process is that if your subsequent tax return shows higher income levels than the estimate, then interest charges may be applied by HMRC.
What about the first payment on account for 2020-21 made 31 January 2021?
If your taxable income for 2020-21 is lower than that for 2019-20, then any payment on account you may have made in January 2021 my have been too much. By rebasing your income on actual earnings for 2020-21, and if applicable, applying for both payments on account due January and July 2021 to be reduced, any overpayment made in January will automatically be included in the recalculated payment due 31 July. In some cases, this may result in a tax refund.
What to do next
If you have suffered a reduction in income – for 2020-21 compared to 2019-20 – call us now on 01242 370298 or email us email@example.com so we can get organised. There is no point in paying over hard-won cash reserves to HMRC if it is unnecessary.