Reduction of Tax Payments on Account

[intalex]

Payroll software will not reduce your personal allowance or adjust your tax code for you. If you have a 1000L tax code then the payroll software will give you a £10,000 allowance over the year irrespective of your income.

The personal allowance will only be reduced when you file a self-assessment return - at that point HMRC will also issue an amended tax code for the following year taking into account the reduction. This will simply be a temporary code, as it is likely that a further adjustment will be made following the submission of that year's self-assessment.

Craig

This is actually the reason for 80% of my final tax liability (which itself was less than 10% of my total tax charge for the year, with the remaining 90% deducted at source). Unfortunately, HMRC's systems have reinstated the payments on account as a result.

When I think about this logically, I feel there are very valid grounds for appealing this.

Unless I'm being biased and someone can correct my thinking?

[Craig at Nixon Williams]

A related question - is it common for payroll systems to not be able to accurately deduct tax on a one-off annual bonus, that pushes an individual's earnings over the threshold above which one's personal allowance is to be reduced?

Payroll software will not reduce your personal allowance or adjust your tax code for you. If you have a 1000L tax code then the payroll software will give you a £10,000 allowance over the year irrespective of your income.

The personal allowance will only be reduced when you file a self-assessment return - at that point HMRC will also issue an amended tax code for the following year taking into account the reduction. This will simply be a temporary code, as it is likely that a further adjustment will be made following the submission of that year's self-assessment.

Craig

[intalex]

A related question - is it common for payroll systems to not be able to accurately deduct tax on a one-off annual bonus, that pushes an individual's earnings over the threshold above which one's personal allowance is to be reduced?

[malvolio]

Anyone with experience of Payments on Account who can suggest something around my question above?

Don't think there is any option. The rules are quite clear, if the expected reduction in tax owed isn't realised then interest will be charged.

[intalex]

Anyone with experience of Payments on Account who can suggest something around my question above?

[intalex]

I've not seen HMRC query a reduction before.

They do however charge interest if you reduce the POA and tax later turns out to have been due, and a recent tax case saw a penalty of 100% of the original amounts being imposed (he was a nightmare case by all accounts so that's unlikely to happen to many others, but it shows HMRC are willing to use the power they have to do so in extreme cases).

Sorry to wake up an old post, but I've just found myself in a similar situation.

For most of the tax year 2012/13, I was a director of a limited company and took dividends from the company, which led to a year end tax liability (per my tax return) of roughly 49% of the total tax charge for the year, which in turn led to payments on account being calculated for me to make in tax year 2013/14.

However, I had wound up my company and moved into full-time employment before the end of the tax year 2012/13 and I therefore reduced my payments on account to zero on the basis that I expected over 80% of my total tax charge for the year 2013/14 to be deducted at source.

On completing my tax return for 2013/14, the final tax liability has (by pure coincidence) come slightly higher than the original payments on account (mainly due to a discretionary one-off bonus I received), and HMRC's systems have consequently re-instated the previously removed payments on account and also retrospectively charged (and still accruing) interest charges.

This is despite my 2013/14 final tax liability being less than 10% of my total tax charge for that year, i.e. over 90% was already deducted at source. Looks to me like their systems may not be sophisticated enough to account for the change in circumstances and the purely coincidental nature of the final tax liability coming in slightly higher than their originally proposed payments on account.

Anyone know if I have grounds to appeal this, on the basis of their own 80% threshold for applying payments on account?

Thanks in advance!

[Anonimouse]

When I last spoke to HMRC they said it took them 8 weeks to open post

[Clare@InTouch]

If you did your return online then you could have reduced your payments on account instantly. I've done it before and it wasn't even queried.

I've not seen HMRC query a reduction before.

They do however charge interest if you reduce the POA and tax later turns out to have been due, and a recent tax case saw a penalty of 100% of the original amounts being imposed (he was a nightmare case by all accounts so that's unlikely to happen to many others, but it shows HMRC are willing to use the power they have to do so in extreme cases).

[Sausage Surprise]

If you did your return online then you could have reduced your payments on account instantly. I've done it before and it wasn't even queried.

[Craig@Clarity]

HMRC will have a post backlog. Assuming they have received it, once they get round to processing it (which they generally do without questioning it), if you have paid the correct payment on account amount in line with the sa303 you'll be fine. They just match up what has been paid with the new figures as per your sa303. Make sure the amount is cleared in their bank before the end of the month though otherwise they may apply late interest payments.

[Clare@InTouch]

It takes a while for HMRC to open post and deal with it - I take it you cannot apply online via the HMRC Gateway account instead? Or ask your accountant to do it through their agent Gateway?

If they process it after the deadline they should backdate the reduction in POA so you'll not be charged interest on the "late" payment.

[JoJoGabor]

I have submitted SA303 form to reduce the personal tax paymetns on account for this year. This form has to be submitted to HMRC before the 31st January, I sent this 10 days ago but they haven't processed it to my account yet. I'm nervous about just assuming they will get it and paying the reduced amount before they have confirmed it. Has anyone ever done this and what did HMRC say?

I realise HMRC are probably very busy at this time of year.