Payment on account errors delay bills for taxpayers

Problems with HMRC’s IT systems earlier this year and calculations for payment on account mean that some taxpayers will not receive tax demands this July, when they actually owe over £1,000 to the taxman

The Association of Taxation Technicians (ATT) is warning that due to some IT glitches with HMRC’s systems in the run-up to the self-assessment season earlier this year, tax calculations for payment on account may not be adjusted correctly. The issue affects returns from tax year 2017-18.

In January 2019, it became apparent that HMRC systems had not always processed payments on account for 2018/19 correctly and that a number of taxpayers’ self-assessment statements did not include demands for the first payment on account due in January 2019.2 Unless affected taxpayers contacted HMRC to correct the position at the time, these individuals will not receive a demand in June or July for the second payment on account due by 31 July 2019.

Those affected will still need to pay their total 2018/19 self-assessment tax bill by the end of January 2020 and ATT is advising them to make sure they set the money aside to do this.

Most individuals in self-assessment with a tax bill of £1,000 or more will pay their taxes in instalments, making payments on account in January and July, followed by a final balancing payment by the following January. The amount which must be paid on account is based on the individual’s tax liability from the previous year.

Jon Stride, co-chair of the ATT’s technical steering group, said: ‘If a taxpayer does not make any payments on account during 2019, then their tax bill in January 2020 could be significantly larger than they are expecting and could come as quite a shock.’

HMRC has told ATT that if no 2018-19 payments on account have been demanded by them, then the taxpayer does not have to do anything and they will receive a demand from HMRC for the full amount of tax in January 2020.

Stride added: ‘Individuals who do not receive expected demands should either set aside the funds needed ready for next year or, if they wish, they can make a voluntary payment on account to HMRC of their July payment - and their January payment if that was also missed.

‘The risk with making a voluntary payment is that there is no guarantee that HMRC will retain the tax paid. Where there is no corresponding liability on the individual’s record, it is possible that HMRC’s systems will see any payments made on a voluntary basis as overpayments, and may well seek to refund the money later as part of their automated processes.

‘It is now too late to prevent refunds occurring by asking HMRC to reinstate payments on account for 2018/19 unless the individual voluntarily paid their first payment on account on time in January 2019. Affected taxpayers who cannot get their payment on accounts reinstated will therefore need to consider making their own provisions for a larger than usual tax bill in January 2020.’

Self-assessment taxpayers with annual tax demands of £1,000 or less do not have to make payments on account. Neither do taxpayers who are in self-assessment but where 80% or more of their total annual tax is collected at source (for example through PAYE).

An HMRC spokesperson told Accountancy Daily: ‘We are aware of an issue with payment reminders for a small number of customers. Anyone who is affected can contact us and we’ll put it right. Nobody will be charged additional interest due to this problem.’

It is not clear how many taxpayers are affected by this issue.

Sara White

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