Limited company contractors warned of HMRC payment on account glitch

Limited company contractors glad that they got their second payment on account into HMRC by July 31st are being alerted to the prospect that the calculation may have been wrong.

Due to a glitch, data included on an individual’s 2017/18 tax return was not correctly picked up by the Revenue’s issuing system, meaning the sum officially sought by last month’s deadline was smaller than it ought to have been. 

This failure of the 2018/19 payment on account to collect taxpayers’ historical return data from the government gateway indicates that, once the glitch is resolved, those affected will face a bigger bill for the full year than they expect.

'Serious cashflow problems'

But problematically, this will need paying to HMRC in one lump sum, potentially triggering “serious cashflow problems” for those who are unwitting now and worse still for contractors, it will fall due just three months before IR35 reform bites.

“HMRC will be charging interest and potential surcharges if the full tax bill is not paid on time in January 2020 -- even though this is could be due to an HMRC error,” adds Lucy Parry, partner at Moore Stephens.

“Having to pay their full amount of tax for 2018/19 in one lump sum as opposed to via two payments on account plus a possible balancing charge in January, could find that this will cause cashflow issues.”

'Not extra'

Parry also said the issues would “especially” arise for those individuals who may not realise that the ‘extra’ money they seem to have in their bank account, “is not extra for them to spend [because it] will be needed [to pay HMRC] at a later date.”

She recommended that taxpayers who were expecting to make a payment on account and did not, or those with HMRC documents showing the payments were reduced to nil, should consult their 2017/18 tax return.

Moore Stephens said: “In some cases, we have seen individuals being wrongly sent automatic refunds from HMRC, which will need to be repaid. Those impacted are going to think it very unfair that an HMRC error could lead to interest charges and in some cases potential surcharges.”