Should I reduce HMRC payments on account?

rundmc-k

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 this time.
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

mcooke999

I went through this thought process.

My initial idea was to wait until later on in the year when I could see how things were going and be in a better position to decide whether or not to reduce my POA, however, in the end I just decided to submit now and keep my POA the same as I already have the tax money saved for it. If my earnings are lower then I'll get some back next tax year.

It doesn't really matter what you do, you'll only end up paying what you owe sooner or later.

Sibbers123

If you have the cash to pay it, you won't lose out (especially the way interest rates are at the moment!). If you need the cash, wait until January and make an amendment to your return. By January you will have a better idea of your earnings.

Note that the SEISS grants are taxable, so you need to consider these if you claimed them/it.

rundmc-k

OK, good points, so basically, if I have the money available, I may as well pay it and then just enjoy the luxury a extra cash availability in a year or two's time?

sheramber

If you can submit your self     assessment return asap after 6 April any necessary adjustment to the July POA will be made before the payment is due.

gt94sss2

Worth remembering if anyone reading this is due to make payments on account in July 20, you delay them until Jan 2021 - see https://www.gov.uk/guidance/defer-your-self-assessment-payment-on-account-due-to-coronavirus-covid-19

mcooke999

sheramber said:

If you can submit your self     assessment return asap after 6 April any necessary adjustment to the July POA will be made before the payment is due.

Mine doesn't change when I submit my tax returns? Are you sure?

[Deleted User]

mcooke999 said:

sheramber said:

If you can submit your self     assessment return asap after 6 April any necessary adjustment to the July POA will be made before the payment is due.

Mine doesn't change when I submit my tax returns? Are you sure?

Fairly sure that he is sure because he/she is correct. For example, let’s say that your payments on account for 2019/20 were £2000 each. You submit your return for that year today and find that you liability for that year is only £3000. Your payments on account will now be:

31January 2000 £1500 (£2000 paid so overpaid by £500)

31 July 2000 £1500. As there is a credit on the account of £500, only £1000 is required to be paid.

I have ignored the minuscule amount if interest arising on the overpayment of £500 from a January 31st to date.

mcooke999

purdyoaten2 said:

mcooke999 said:

sheramber said:

If you can submit your self     assessment return asap after 6 April any necessary adjustment to the July POA will be made before the payment is due.

Mine doesn't change when I submit my tax returns? Are you sure?

Fairly sure that he is sure because he/she is correct. For example, let’s say that your payments on account for 2019/20 were £2000 each. You submit your return for that year today and find that you liability for that year is only £3000. Your payments on account will now be:

31January 2000 £1500 (£2000 paid so overpaid by £500)

31 July 2000 £1500. As there is a credit on the account of £500, only £1000 is required to be paid.

I have ignored the minuscule amount if interest arising on the overpayment of £500 from a January 31st to date.

I submitted my return last week and my July 2020 POA hasn't changed from what it was before?

The only difference between my situation and your example is my tax bill for 19/20 was larger than the previous year so I have a small(ish) balancing payment to make in Jan 2021, but the POA hasn't changed for July 2020 since I submitted my previous tax return last year? So maybe HMRC only adjust it one way?

yorkiechick

If you cancel payments on account and you do have a tax bill, then interest will be charged and the balancing payment would be due straightaway rather than the following January. 
The easiest way is to make the January POA if you can, then submit your 2021 tax return before 31st July 2021. If your first POA more than covers your tax liability the second payment would not be due. Or, as above, the second payment will be adjusted if the tax liability is a lot lower.

[Deleted User]

mcooke999 said:

purdyoaten2 said:

mcooke999 said:

sheramber said:

If you can submit your self     assessment return asap after 6 April any necessary adjustment to the July POA will be made before the payment is due.

Mine doesn't change when I submit my tax returns? Are you sure?

Fairly sure that he is sure because he/she is correct. For example, let’s say that your payments on account for 2019/20 were £2000 each. You submit your return for that year today and find that you liability for that year is only £3000. Your payments on account will now be:

31January 2000 £1500 (£2000 paid so overpaid by £500)

31 July 2000 £1500. As there is a credit on the account of £500, only £1000 is required to be paid.

I have ignored the minuscule amount if interest arising on the overpayment of £500 from a January 31st to date.

I submitted my return last week and my July 2020 POA hasn't changed from what it was before?

The only difference between my situation and your example is my tax bill for 19/20 was larger than the previous year so I have a small(ish) balancing payment to make in Jan 2021, but the POA hasn't changed for July 2020 since I submitted my previous tax return last year? So maybe HMRC only adjust it one way?

Everything that you have said is correct. The payments on account will not be altered with any balance for 2019/20 payable  on 31st January 2021