Sole trader planning ― payments on account

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Sole trader planning ― payments on account
  • Coronavirus (COVID-19) impact on 2019/20 payments on account
  • Calculating payments on account
  • Reducing payments on account

Sole trader planning ― payments on account

This guidance note discusses some of the planning points that can arise around payments on account.

Payments on account are essentially a part of the compliance process. However, it can be a very good time to put forward certain simple planning points. It is a natural time to communicate with clients, and they will be particularly focused on tax issues given that they have an impending payment.

Aside from talking to clients about payments on account, it is a good time to conduct a review of future profits of the trade. Other points can also be considered, such as pension contributions, business expenditure, deferring income and so on.

Often the challenge is persuading clients to think further ahead. Payments on account are useful for this because the amounts due can be calculated quite far ahead. For a 30 April year end, two years ahead can be calculated with reasonable accuracy. See Overview of sole trader tax planning ― Example 1.

Coronavirus (COVID-19) impact on 2019/20 payments on account

As per the guidance on the GOV.UK website, the second self assessment payment on account for the 2019/20 tax year is effectively deferred from 31 July 2020 to 31 January 2021. This means that the 2019/20 balancing payment due by 31 January 2021 is the total income tax, capital gains tax, Class 2 and Class 4 NIC due for the tax year less the first payment on account.

However, rather than changing the due date in the legislation, this has been achieved by waiving the interest on the second payment on account between 31 July 2020 and 31 January 2021.

This applies to all those required to make payments on account under self assessment, whether or not their income is affected by the impact of coronavirus.

The deferment applies automatically without the need to make an application. Note that although the deferment applies to all, the Government asked that anyone who was able to make the second

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