So wrote William Shakespeare over 400 years ago but this could easily have been said by HMRC in 2020.
One of the most frequent question we are asked is when a tax bill needs to be paid. It is important to get right as the fines for late payment can be eye watering.
A few of the easy ones……
VAT must be paid one calendar month and 7 days following the end of your VAT quarter. If your quarter ends on the 30th September, your payment needs to be in HMRC’s bank account by 7th November. If 7th falls on the weekend, then your money has to be there on the Friday before. If you have a direct debit in place, the funds normally leave your account on the 10th but you should make sure sufficient funds are there by by the 7th.
Annual VAT schemes have a different payment scheme. You make 9 payments on account during the year and then your final balancing payment is due 2 months after the end of the VAT year.
MOSS (European VAT on digital services) is due 20 days after the end of the quarter – a lot less time to pay than your UK bill.
Payroll taxes, i.e. PAYE, National Insurance, Student Loan Deductions, are due within 14 days of the end of the tax month. These run in line with the personal tax calendar (6th to 5th) and is why payroll bods speak in terms of month 1, month 2 instead of April or May because those months run 6th April to 5th May and 6th May to 5th June for example. Officially electronic payments need to be made by 22nd but we always advise 19th to make sure funds are cleared through in time. So for your September payroll (aka month 6), your payment must reach HMRC by 19th October.
N.B. Your accounts office reference is how HMRC match your payment to your employer account. If you pay inside the 14 day window, you don’t need to add any more information. If you pay outside that period, you should tell HMRC which month’s liability you are paying. You do this by adding the period and the tax year onto your accounts office reference. For example, if you need to pay August’s liability after 19th September you should add: 2105 to your 13 digit reference. 21 being the 2020-21 tax year we are currently in and 05 being month 5.
Construction Industry Scheme (CIS) is the income tax that contractors are legally required to deduct before paying their subcontractors – this is governed by the same timings as Payroll taxes.
Class 1A NIC is the National Insurance payable by employers on benefits-in-kind provided to their employees e.g. company cars, health insurance. This is due to HMRC by 22nd July after the end of the tax year (19th if paying by post).
Income tax and National Insurance are probably the most complicated, or at least they can be. If you are employed and have no other sources of taxable income, your income tax and National Insurance (Class 1) should be deducted in full from your salary by your employer. The amount of income tax is driven by your PAYE tax code. A recurring drum to beat for me but YOU must check your tax code is correct. HMRC decide your code and your employer is legally required to apply it. You can challenge its accuracy with HMRC and you can change it via your personal tax account. If you pay too little tax, HMRC will come after you for the underpayment. It might not be straight away and they can come back years later if need be. If you pay too much, well that’s up for debate.
If you are self-employed or have income that is not taxed through the PAYE system, you will generally report your income to HMRC via a Self Assessment tax return. Your tax and National Insurance are due for payment on 31st January following the end of the tax year. For example, the tax and NI due for 2020-21 year, which runs 6th April 2020 to 5th April 2021, is due for payment by 31st January 2022. The self-employed pay Class 2 and Class 4 NIC at the same time as their income tax. Student loan repayments are also payable via the Self Assessment regime at the same time as tax/NI.
So far, that sounds pretty simple, you say, but ha ha, that would never do. This is where the Payments on Account regime barges in to spoil the party. Once you have been in the Self Assessment system for a year, HMRC ask that you pay some of your tax for following years before the 31st January deadline. These two payments are known as Payments on Account.
This is best explained using a practical example:
Martin starts work as an electrician on 1st May 2018 and decides to make up his accounts to 5th April 2019. For the 2018-19 tax year, he will pay his tax on 31st January 2020.
He carries on his successful electrician business into the 2019-20 tax year but HMRC don’t want to wait until 31st January 2021 for his tax & NI for that year. Instead, they ask him to make 2 payments on account. One on 31st January 2020 and one on 31st July 2020. These are estimated figures based on his total bill for 2018-19 and are split 50/50 between the 2 payments. If his tax & NI payable for 2019-20 is more than the payments on account, he will then make a balancing payment on 31st January 2021.
He will also need to pay his first payment on account for 2020-21 on 31st January 2021.
A lot of taxpayers dislike the payment on account system but in truth it is your best friend and stops a LOT of people from getting into a LOT of debt with HMRC. The good things for our clients is that we send out reminders, check that HMRC have allocated the funds and also watch for when POAs (as they are affectionately known) can be reduced – we also advise on the risks associated.
Capital Gains are reportable via the Self Assessment Tax Return and payments are due in line with the dates for income tax and NI. However capital gains tax does not form part of the POA calculation (neither do student loan repayments). More on one special case for CGT in our Top Tip.
Last but not least, Corporation Tax, which will look like a walk in the park by comparison to self assessment. Corporation Tax is due 9 months and 1 day after the end of the company’s chargeable accounting period (“CAP”). So if a company’s CAP runs from 1st April to 31st March 2020, the tax is due 1st January. We always advise payment on 31st December just to be sure. It is possible to have more than one CAP in which case you do need to be mindful of having different payment dates. At Composure, we always send out reminders and check that HMRC have received funds and allocated them accurately.
N.B. Large companies (those with taxable profits between £1.5 and £20 million) pay their Corporation Tax in quarterly instalments which fall partly within and partly after your CAP.
If you would like a more hands-on approach from your accountant in managing your tax liabilities, then please contact us to find out the ways in which we advise and support our clients.