Thousands of sole traders run the risk of paying more tax than they are actually liable for this year, due to the new automated payment system created by HMRC.

Research that has been conducted by TaxScouts suggests that one out of every five sole traders has been moved over to the system called Payment on Account developed by HMRC, ahead of this year’s deadline for tax returns. This system enables the tax authority to claim advance payments calculated using an individual’s predicted earnings in the future and their tax return for the year before.

The problem arises because this system operates on an automated basis and is not capable of factoring in reduced profits that sole traders have suffered due to unforeseen events like COVID-19. Furthermore, polling indicates that 40% of sole traders do not know about the option to lower their tax bill available within this system.

HMRC is being urged by the Association of Independent Professionals and the Self-Employed (IPSE) to do all it can to let them know about that feature and to change the status of the second payment from mandatory to optional.

Speaking to FT Adviser, Andy Chamberlain from IPSE said:

“We urge HMRC to do more to raise awareness about this issue and ensure hundreds of thousands of freelancers do not unfairly take another financial hit.”

An issue such as this demonstrates why many sole traders look to hire an accountant who is experienced at handling tax return services in Goole or anywhere else they are based.