Freelance Informer launches #getrealhmrc Campaign to urge HMRC to use realistic calculations for tax bills to reflect ‘lockdown earnings’
The Freelance Informer is calling on the HMRC to have a two-pronged and realistic approach to handling self-employed tax bills in 2021 to fairly reflect for the sudden and considerable drop in earnings since the onset of the March lockdown across the UK and ongoing COVID economic crisis.
For those self-employed, that experienced a sudden drop in earnings due to the lockdown and ongoing social distance measures and have not recovered to pre-lockdown earnings, the HMRC should seriously consider tax bill calculations reflect genuine predicted earnings, especially for the two payments on account. And for those, that did suffer a drastic loss for a shorter period, and are now back to making pre-lockdown earnings, then they should have the choice to pay as normal or to negotiate a payment plan so that they can keep trading through the pandemic.
These considerations suggested should not exclude yet again those that have already been denied any form of government support since the onset of the pandemic, but rather put them at the forefront of consideration. It’s the right thing to do. The alternative is foreclosures on houses, broken families, business closures, lost retirement savings, and sky-high personal debt, to name just a few very realistic eventualities.
HMRC does already consider reduced payments on account and, more recently accepts a series of monthly tax bill instalments rather than a lump-sum payment, thereby putting the onus on the self-employed to sort this out themselves.
In addition to the uncertainty over many contractors’ IR35 status decisions with end company clients, the Treasury is also considering a number of dramatic tax increases on the self-employed, including a rise in National Insurance Contributions, Mona Patel, a spokesperson at financial advisory, Royal London, points out.
Royal London is urging the Government to make the requirement for the self-employed to pay tax in advance easier and simpler and to allow for the impact that a drop in income has on tax planning.
“The system is incredibly complicated and the self-employed may need extra help to understand their options,” said Patel.
“Many self-employed people may be expected to pay more in tax than they have actually earned in the past year because of the payment on account system,” she said.
“This lack of ‘real world’ tax bills means it’s perfectly feasible that those who have suffered the steepest drops in income could find themselves in this situation,” said Patel. “While the Revenue has announced a system that enables people to pay in more manageable instalments, this still doesn’t go far enough for those who could end up overpaying tax unnecessarily because their bill is based on last year’s earnings. We urge HMRC to do the right thing and help the self-employed understand their options,” she said.
- The self-employed are facing multiple tax bills in 2021 – The payments include tax owed for the previous tax year and two payments on account.
- In addition to The Freelance Informer, Royal London is also calling on HMRC to launch a targeted information campaign for the self-employed which draws their attention to the need to ensure tax is calculated on genuine predicted earnings. All those that are self-employed should feel compelled to contact HMRC to discuss a ‘genuine’ tax bill for 2021 which is based on predicted earnings rather than those from the 2019/20 tax year.
Usually, self-employed workers who file annual Self-Assessment forms must also make two ‘payments on account’, one in January and one in July. Unlike PAYE employees, the self-employed are expected to pay tax in advance. It can result in large bills and often comes as a nasty surprise for the newly self-employed.
Royal London said in a statement that the situation is exacerbated due to the way that tax is calculated for the self-employed, as their table below explains.
“Not only are self-employed people expected to pay some of their tax bill in advance, next year they must make an extra payment on account after the Chancellor deferred one of 2020’s bills. Put simply, many self-employed people will have to settle tax bills which bear no relation to 2020’s reduced earnings,” said Royal London.
|Payment on account due by July 31 2020 – calculation based on income earned in the 2018/19 tax year||Payment on account due by July 31 2020 deferred – final payment must be made by January 31 2022|
|Payment on account due by January 31 2021 – calculation based on income earned in the 2019/20 tax year||Payment on account due by January 31 2021 deferred – final payment must be made by January 31 2022|
|Self-assessment tax bill (also known as the balancing payment) due by January 31 2021 – calculation based on income earned in the 2019/20 tax year **||Self-assessment tax bill (also known as the balancing payment) deferred – final payment must be made by January 31 2022|
Late fees are still a reality. Anyone who misses the 31 January self-assessment deadline also faces late payment penalties and interest charges. In addition, those self-employed who choose to spread out their tax payments in 2021 will be charged interest by the Revenue, Royal London has noted.
The Freelance Informer truly hopes that HMRC looks at the long-term implications on the self-employed economy by not taking any unjust tax grabs. Rome wasn’t built in a day, we understand that, we just want to ensure the people skilled to build it are still in business in 2021.
Please like, join and share the #getrealhmrc campaign on your social media to fellow self-employed friends, family and colleagues. To ensure you get the latest on the conversation sign up here.
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