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Should I reduce HMRC payments on account?

rundmc-k
Posts: 121 Forumite


Hi, just looking for a little advice.
I have already completed my online self-assessment return for 2019-20.
Near the end, it asks if you want to reduce payments on account, I have always said no, and did again.
However, I have been wondering whether I should go back and change that, for two reasons:
1. Due to Covid19, my earnings for 20-21 will be lower. I don't know how much lower, but I would guess 10-20% overall.
2. In the 20-21 tax year, I plan to open a SIPP for the first time, and contribute enough to take me out of higher rate tax band (so I will likely contribute 5-10k to this)
So overall, my taxable earnings for 20-21 should be at least 15k less than for 19-20. So would it be financially beneficial for me to reduce payments on account? If so, should I wait until March and try and work out a fairly precise figure, or should I just lollop off about 15k from predicted earnings for the reduce payments section. Or is there no real benefit in me doing it at all, as I am unlikely to really really 'need' to pay less in my Jan/July 21 payments. Any help would be appreciated. Thankyou
I have already completed my online self-assessment return for 2019-20.
Near the end, it asks if you want to reduce payments on account, I have always said no, and did again.
However, I have been wondering whether I should go back and change that, for two reasons:
1. Due to Covid19, my earnings for 20-21 will be lower. I don't know how much lower, but I would guess 10-20% overall.
2. In the 20-21 tax year, I plan to open a SIPP for the first time, and contribute enough to take me out of higher rate tax band (so I will likely contribute 5-10k to this)
So overall, my taxable earnings for 20-21 should be at least 15k less than for 19-20. So would it be financially beneficial for me to reduce payments on account? If so, should I wait until March and try and work out a fairly precise figure, or should I just lollop off about 15k from predicted earnings for the reduce payments section. Or is there no real benefit in me doing it at all, as I am unlikely to really really 'need' to pay less in my Jan/July 21 payments. Any help would be appreciated. Thankyou
0
Comments
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Any payments made into your SIPP will have 25% tax relief added to them automatically (into your account at some point).
Youll have to record your SIPP contributions on your tax return but because you’ll have already received the tax relief it won’t lower your tax bill.
(That’s assuming you’re in the lower rate tax bracket)
As for lowering your payment on account due to lower earnings that’s a judgement call for you to make. I don’t think it’ll be challenged by HMRC in the current situation, but I don’t know how shirty they’ll get if you end up under paying.0 -
I'm in the higher rate tax bracket. I'm planning on paying into the SIPP enough to move me into the lower rate tax bracket. I can then claim that additional tax relief through self-assessment (AFAIK. I haven't done it before/yet).
I'm thinking maybe I will just keep the payment on account as is. It will just mean I will have some extra cash availability a couple of years down the line0 -
Yes, you would get basic rate relief at source (a gross-up to your contribution claimed by the pension provider) and your tax bill would be lowered by HMRC extending your basic rate band (giving effect of getting you the higher rate relief on the grossed-up contribution).
If you know your tax bill is going to be materially lower than it might have otherwise been, then paying a high amount 'on account' and then eventually not needing to pay as much in the end (or even getting some back) seems like you are just giving HMRC your money for safekeeping when you could have instead got away with giving them some lower amount instead.
But with interest rates very low at the moment, if you don't need the cashflow benefit you might feel it's better to remove the temptation of having lots of cash swilling around in a low-interest savings account, and therefore keep paying 'as is' and have an easier time later. I suppose it depends what you have going on in your life or business which might require access to the cash which you could have held on to for a while, but instead gave to HMRC on account.1 -
Yes, I think given interest rates are so low there's not a lot of point in me stressing too much about it. If there was a decent rate somewhere, whereby if I kept the money I could get a couple of hundred pounds interest on the amount I'd taken off account, then it would be worth looking at. I don't think that really exists though. I'm mainly looking at long term investing at present which that wouldn't be suitable for.0
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