PAYMENT ON ACCOUNT DEADLINE: How to manage your payment if your income has fluctuated
As we approach the payment on account deadline on 31st July, self-employed professionals may be at risk of not being able to pay their tax bills due to fluctuations in income.
For those struggling following the impact of the pandemic, which may have led to a disrupted work pattern and subsequently lower earnings, money.co.uk has guidance on how to best manage the upcoming payment:
James Andrews, senior personal finance editor at money.co.uk, said: “We all know that one of the drawbacks of being self-employed is that your income can fluctuate month to month and year to year.
“As the second payment on account deadline is coming at the end of this month, there are going to be a large number of self-employed individuals who will have a lower income than the previous tax year, whether that be due to Covid or other circumstances. Given the payment is set as standard to half your bill last year, that could see some struggle.
“If this is you, the good news is that you can apply to have your payment on account reduced. You can do this by logging into your online HMRC account and clicking ‘Reduce payments on account’, or sending form SA303 to your tax office.
“When it comes to doing this however, there are two things you should consider. First, you should note that if your income turns out to be the same or higher in the next tax year, you’ll still be required to pay the same amount.
“Similarly, if you’ve reduced your payment on account and then find out you’ve underpaid, you will have no choice but to pay interest on the outstanding amount, which can significantly increase your tax bill.
“If you overpay on the other hand, HMRC will offer a rebate. To claim your refund, you can use form SA303, and your entitled credit should then come up in your Self Assessment account.
“All things considered, when it comes to deciding to reduce payment on your account, you should think very carefully and weigh up all of your options.
“If you are still struggling to pay following the reduction in payment, there are plenty of proactive steps you can take to fix the issue; from prioritising your debts, speaking to your creditors, and setting a budget for yourself.
“On this, be sure to track your spending and keep a list of all the different amounts you owe, such as credit card bills, car finance payments and any BNPL (buy now pay later) deals you may have taken on other goods.
“In addition, if you are still struggling with debt, there are services available that can provide independent, impartial advice, such as StepChange Debt Charity, Citizens Advice or the National Debtline.