Press Room

Payment on Account

HMRC may ask for a Payment On Account (POA) when you have personal income which has not had tax deducted at source. In other words, they assume that your personal income will be the same for the next tax year.

Simplified Example:-

Your personal tax return for 2007_08 is finalized and you have an additional liability of £5,000 due to dividends taken during 2007_08 not yet taxed ( this is as a result of going over the £40k tax threshold as explained at your initial meeting with David )

HMRC will then assume (fairly or unfairly) that you will have similar dividend income in 2008_09 and, therefore, they will ask for two POA’s

• 1st Payment on Account due 31 January 2009   = £2,500
• 2nd Payment on Account due 31 July 2009        = £2,500

FAQ’s

Am I paying tax in advance?

Not really. By the time they ask for the £2,500 in Jan 2009 you will have had the majority of the dividend in the current tax year, so no it’s not a payment in advance

Assuming my income doesn’t change, will I get ‘stung’ every year?

You will have a POA every year but you only have a cash flow issue at the end of the first year being assessed. For example, you will have £2,500 to pay in Jan 2009 and Jan 2010. But in Jan 2010 when your self assessment is submitted you will have already paid your additional tax in advance.

Can I do anything about the payment?

The only way you can avoid the Jan and July POA is to convince HMRC that you will not be earning the same level of income in the following tax year. In other words, you need to let them know that you will not be receiving the £5k. We can do this for you. Warning!!! If you subsequently receive the £5k then they will levy the POA as back dated tax with interest.

Can POA be forecast in advance?

It is difficult to forecast POA in advance because assumptions have to be made about income received over 12 months in the future. Also, many clients have sources of income outside their limited companies that HMRC will take into account that we have no knowledge of. This may include other dividends, property income, etc….

Is this in line with the initial figures given to me as part of my tax and expenses strategy?

Yes indeed, you are not paying more tax it is simply the timing of the taxes being paid