Personal Tax Refund

[TheBusinessAnalyst]

Last FY (2019/2020) my personal tax was significantly hire after my wife took a sabbatical from work and hence my dividends were higher.

That resulted in a hefty 'Payment on account for next year' as per the usual HMRC rules

This FY (2020/2021) my dividends have returned to the normal level and by my calculations my personal tax will be around £5,000 less than I actually paid for this year's accounts.

Does anyone know how the refund is worked out and then paid?

For example, I paid £9,000 in 2 instalments for my POANY
My personal tax this year will be about £4,000 leaving an over payment of £5000

However, based on a tax bill of £4,000 for this year, I'd epxect to have to make 2 x £2000 payments (Jan 2022/Jul 2022) for next year's accounts

So, my question is - will I get the £5,000 back in a lump sum, then be expected to make the usual POANY payments]


OR

Will my POANY be deducted from my refund, netting me about £1000, but leaving me without any POANY payments to make in Jan/July 2022


Apologies if this is a daft question, but any advice would be great

[Lance]

when you submit your return they will either change your tax code (unlikely due to the sums involved so they'll likely send a cheque).
POA will be calculated lower based on the more recent tax year.

[TheBusinessAnalyst]

when you submit your return they will either change your tax code (unlikely due to the sums involved so they'll likely send a cheque).
POA will be calculated lower based on the more recent tax year.

Thank you - so refund would be based on what I paid less what I owe

POA calculated on this year's tax and is payable as normal regardless of refund?

[Lance]

Thank you - so refund would be based on what I paid less what I owe

POA calculated on this year's tax and is payable as normal regardless of refund?

yes. POA is for the next tax year and is based on the tax being the same.

[ladymuck]

What you can do next time, in case this happens again, is apply to adjust the POA - it's really easy to reduce them via the online portal. All the POA calculation does is look at the return and then assume that next year's income will be the same so you could end up paying way over the odds for an extra year if you don't adjust it. You just put in a figure you think is more reasonable and that's what you pay. The only tricky thing with that is if you reduce it by too much you may incur some interest for a low estimate. However, if you roughly draw the same each year then you'll have a decent idea of what you're going to owe.

[northernladuk]

Ring HMRC, advise the situation and get them to alter it. From what we've seen on the forums it is surprisingly easy to do. You'd imagine any call to HMRC is going to take hours and be an utter nightmare but it appears it's not. I've yet to to try it to be convinced though.

[TheBusinessAnalyst]

What you can do next time, in case this happens again, is apply to adjust the POA - it's really easy to reduce them via the online portal. All the POA calculation does is look at the return and then assume that next year's income will be the same so you could end up paying way over the odds for an extra year if you don't adjust it. You just put in a figure you think is more reasonable and that's what you pay. The only tricky thing with that is if you reduce it by too much you may incur some interest for a low estimate. However, if you roughly draw the same each year then you'll have a decent idea of what you're going to owe.

Good advice. Thanks for that