Reply to: Payment on account, will changes flag me for attention?

[nervousnewbie2018]

My accountant has came back with an estimation for my 2017/18 SA at £2875, I will set each POA at £2k and complete my SA as soon after April 6th as possible hoping July's POA will drop down to £875.

Thanks for all the advice!

[Jessica@WhiteFieldTax]

Thanks, Jessica. Reading is hard, I failed it that time.

Your statement about IR35 and international contracts fits my understanding. I just wondered if you were going further and saying it would never be investigated, but it sounds like the risk is still there (at least in principle), but minimal.

Yep

[WordIsBond]

Thanks, Jessica. Reading is hard, I failed it that time.

Your statement about IR35 and international contracts fits my understanding. I just wondered if you were going further and saying it would never be investigated, but it sounds like the risk is still there (at least in principle), but minimal.

[Jessica@WhiteFieldTax]

I have considered jettisoning all UK clients and strictly doing international clients. I'm actually not making that much on UK clients anyway, the real money in what I'm doing is on the other side of the pond.

Are you saying that if I did that I could forget about IR35 because they'd never come looking at it? That IR35 investigations always start from the clients?

No ** employer route ** as in Employer Compliance for contractor.

think about a PSCs interaction with HMRC:

- Corporation Tax
- VAT
- PAYE/NI (Employer compliance)
- Self Assessment

Its the PAYE/NI/Employer Compliance where IR35 starts, unless they are cross duty working which is quite rare.

Of course, it would be expected that intelligence from agencies and the Off Payroll Reporting Requirements would feed into this. There is little evidence, based on take up of IR35 work, it is.

Can / does IR35 apply internationally? Yes. Can HMRC make the case stick? Probably not. There is other low hanging fruit for them.

[WordIsBond]

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Ir35 investigations come down the employer route, not self assessment.

I have considered jettisoning all UK clients and strictly doing international clients. I'm actually not making that much on UK clients anyway, the real money in what I'm doing is on the other side of the pond.

Are you saying that if I did that I could forget about IR35 because they'd never come looking at it? That IR35 investigations always start from the clients?

[craigy1874]

But then you are flagged for attention which is the whole point of the thread no? I believe IR35 investigations come from issues like this and if that's the case I'd guess tax investigations would be the same.

You believe wrong. IR35 enquiry from a payment on account reduction? That's what I call paranoia!

There is no attention flagged for reducing payments on account. It is a legitimate mechanism for ensuring you pay the correct amount of tax and nothing more, i.e. Self-Assessment.

I always advise my clients not to raise their head above the parapet, but reducing payments on account does not count as one of these situations.

[Jessica@WhiteFieldTax]

But then you are flagged for attention which is the whole point of the thread no? I believe IR35 investigations come from issues like this and if that's the case I'd guess tax investigations would be the same.

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Ir35 investigations come down the employer route, not self assessment. The chances of HMRC cross team working are minimal, even if they did flag for investigation the reduction in POA, which is unlikely.

In 31 years I've seen a POA reduction cause an issue with HMRC once, and that was 28 years ago before the POA regime as it is now.

[northernladuk]

Erm...you pay an interest charge, which is an automated calculation, so still no problem.

But then you are flagged for attention which is the whole point of the thread no? I believe IR35 investigations come from issues like this and if that's the case I'd guess tax investigations would be the same.

[craigy1874]

Erm... playing devils advocate... but it will if he gets it wrong?

Erm...you pay an interest charge, which is an automated calculation, so still no problem.

[radish2008]

Erm... playing devils advocate... but it will if he gets it wrong?

I agree - I would much rather pay more now and get the refund than get it wrong. I'm in exactly this position now - looking at coming out of a well paid contract in July and then maybe down to a lower paid local gig - or I might get extended again.

[northernladuk]

Erm... playing devils advocate... but it will if he gets it wrong?

[craigy1874]

I agree with Michael, been doing this for 20 years and never heard of any flags being raised by payment on account reductions.

At the end of the day you pay interest if you reduce them excessively so HMRC are (other than perhaps cash-flow) not any worse off.

[nervousnewbie2018]

I dropped it to £100 and paid two lots of £50.

If you reduce it too far and then have to pay it, then you get hit with an interest charge. If you overpay, then HMRC will pay you interest. Needless to say, these two rates are not the same.

I could have reduced it to nothing, but the advice was to pad it a little bit just in case there was a small charge to pay.

Thanks to all those who have answered, one final question (more a statement of understanding) on the SA when there is the option to change the POA this is the value for the whole year, but half of which is payable with the previous years liability on the 31st January, with the rest in July?

[TheFaQQer]

So it's best to over estimate still by a a few hundred to cover any unkowns? As it stands my POA is £8k and if things stay as I plan them to (Feb/Mar wage and the planned dividend) that will drop down to £2.5k.

Two questions then, on the SA did you drop down the POA to £50 or £100 (ie do you have to set the full POA at the time on the SA or do you set it as half of what you want it to be which is then repeated in July?

I dropped it to £100 and paid two lots of £50.

If you reduce it too far and then have to pay it, then you get hit with an interest charge. If you overpay, then HMRC will pay you interest. Needless to say, these two rates are not the same.

I could have reduced it to nothing, but the advice was to pad it a little bit just in case there was a small charge to pay.

[Michael at BI Accountancy]

Has anyone changed the POA they were due to make, what reason did you give, and did it flag your for HMRC's attention going forward?

In my opinion this does not raise any flags or further attention from HMRC. Reductions to POA are fine so long as you have a reason, normally due to lower profits or income etc.

As TheFaQQer notes, should you reduce the POA to a level which does not cover the personal tax liability then you would be charged interest on late payment. Therefore definitely best to over budget on that front.