Many members have reported to us that statements of account issued by HMRC earlier this year did not show the individual’s full tax liability due by 31 January 2019 deadline as they did not include any demand for 2018-19 payments on account.
Broadly, individuals in self-assessment would have expected to pay two amounts of tax by 31 January 2019:
- The balance of any tax due for 2017-18.
- A payment on account for 2018-19 if the amount of tax due under self-assessment in 2017-18 exceeds £1,000, and less than 80% of the individual’s total tax was collected at source.
For the last few years there have been issues with HMRC’s systems processing the payment on account element of tax demands, meaning that statements of account have not always requested the correct amount of tax. However, for 2017-18 returns, the number of taxpayers where the subsequent year’s payments on accounts have not been processed is significantly greater than in previous years.
The issue has been raised on HMRC’s Agent Forum, and the following is based on HMRC’s response to those concerns. (HMRC’s response can be found on the Forum on thread reference SA202. Details of how to access the Forum can be found here.) We also received a further update about this issue on 18 March, and this article has been updated accordingly.
What should you do if payment on accounts for 2018/19 were not demanded?
The first question is, did the individual actually pay their 2018/19 payment on account by 31 January 2019 - despite the absence of any demand?
If they did, following advice from HMRC on the Agent Forum, then they (or their agent) can call HMRC and ask them to add the payments on account to their record. That should ensure that payment on account is not repaid. The individual should then receive a demand for the second payment on account in July 2019 as usual.
If they did not, and no payment on account was made, then HMRC advise that their telephone advisers will not now be able to create the payments on account. Instead, the individual can either:
- pay all of their tax for 2018/19 by 31 January 2020, or
- voluntarily make payments on account.
How are balancing payments on account affected?
Depending on the size of the payments on account, if they have not been demanded or paid as expected, then failure to pay payments on account voluntarily could leave an individual with a very large balancing payment due by 31 January 2020.
For example, if the payment on accounts had been calculated as £5,000 in January 2019 and £5,000 in July 2019 and the tax bill is ultimately established to be £12,000 for 2018/19, then the individual would need to pay the full amount of £12,000 by 31 January 2020 – along with their payment on account for the next tax year of 2019/20 of £6,000 – so a total of £18,000.
With payments on account, an individual’s tax bills are more spread out, and in this case they would pay their tax as £5,000 in January 2019, £5,000 in July 2019, and £2,000+ £6,000 = £8,000 in January 2020.
There is a risk that an individual who fails to plan for this change in tax payment patterns could risk falling into debt. We understand that HMRC’s Debt Management Team are aware that this could be a potential issue next year.
What about voluntary payment?
Where an individual chooses to spread their tax bill by paying their payments on account voluntarily, there is no guarantee that HMRC will retain any 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 as part of their automatic processes.
If this happens, the individual may find it easier to pay the full amount in January 2020 and may want to consider setting aside sufficient funds, perhaps in a separate savings account.
Will HMRC correct the position by July 2019?
Under the payment on account system, the first payment is made in January and a second, equal, amount of tax paid in July.
As we understand it – and HMRC have now confirmed- if the taxpayer’s account did not currently include a demand for a payment on account in January 2019, then HMRC are not intending to add the payments on account to their account in time for the payment usually due in July 2019. Instead, HMRC will demand the full amount of tax by 31 January 2020.
HMRC will be issuing guidance to their helpline advisors in advance of the July 2019 payment date, as they anticipate increased calls at this time.
What about interest charges for late payments?
We understand from HMRC that if payments on account have been left off the individual’s statement and they did not receive demands for payment in January 2019 or July 2019 then no interest will be charged - as long as any tax due is paid in full by 31 January 2020.
There is some suggestion that where an individual has succeeded in getting payments on account added to their account that it might generate interest charges, even when the payment has been made on time. If an individual has concerns that they have been charged interest incorrectly they should contact HMRC.
Any agent who sees examples of incorrect interest charges can let HMRC know by emailing their client’s UTR to agentforum.wt [at] hmrc.gov.uk.
What about payments on account for 2019/20?
The final question is whether or not this issue will be resolved by the time that 2018/19 returns are submitted, so that any payments on account calculated for 2019/20 will be correctly shown on individual’s accounts. We are advised that HMRC have been working on a solution and they are confident that the issue should not recur when 2018-19 returns are filed. If a member finds that 2019-20 payments on account are not generated when expected, please let us know on atttechnical [at] att.org.uk.
The fix is tax year specific and it is possible that late-filed 2017-18 returns could still be affected so that 2018-19 payments on account may not always be generated on HMRC’s systems.
HMRC are well aware of the issue and have apologised for the problems this year. The ATT, CIOT and other bodies have raised a number of concerns with HMRC, particularly around communication of the issue to the wider public. It will be difficult for HMRC to communicate individually with every individual taxpayer affected, but we have asked for agents to be updated via the regular Agent Update.
In the meantime, any feedback on this issue is welcome. We have had some reports from agents that helpline staff are not always willing to reinstate payments on account on the grounds that it might generate incorrect interest charges. If you encounter this problem please let us know on atttechnical [at] att.org.uk.