31st July: Can your tax payment be reduced?

Many taxpayers who are required to file a self-assessment tax return to HM Revenue & Customs should now be preparing for their next tax payment which is due by 31 July.

The amount payable is the second payment-on-account for the 2020/21 tax year and is automatically calculated as half of the total tax liability for the previous tax year, assuming that was greater than £1,000 and less than 80% tax was collected at source from income.

For those who believe their tax will be lower in 2020/21 than 2019/20, perhaps due to COVID related lower income levels, higher tax reliefs claimed or more tax collected at source, there is an opportunity to reduce the July tax payment.

If this is relevant to you this reduction can be achieved by either submitting your 2021 tax return, which shows lower tax due, by 31 July, making an online election to reduce the payment on account, or submitting an SA303 election to HMRC.

In July 2020 HMRC gave the option defer payment of the second payment on account to 31 January 2021, there is no such deferral this year.

If payment is not made on time then late payment interest will be charged on the late payment. Currently interest is charged at 2.6%.

In certain circumstances, actions can still be taken after the 5 April 2021 tax year end that will result in carry-back claims which can be used to reduce the July tax payment. These include:

• Making charitable donations,
• Taking relief for the following year’s trading loss,
• Crystallising a capital loss on subscriber shares,
• Making EIS or SEIS investments.

As always with tax compliance and planning, if you are in doubt or need assistance, seek professional advice.

Blog entry by: Nick Edgley.