Reply to: Quick summary of impending changes in April

[WordIsBond]

POA should be optional if it really is being sold as a benefit to the self employed to pay their future tax in instalments.

You are going to have a hard life if you believe people take money from you for your benefit, whether those people are paid by HMG or not.

Do we get interest from HMRC if we overpay tax via POA?

You will attract a lot of interest from them if you underpay, but maybe not the kind of interest you meant.

[Hobosapien]

Yes you're right, I did put bonuses in single quotes to mean not really a true bonus.

Divis are bonuses in that they are unpredictable as far as knowing for sure what profit will be in play at the end of a tax year when you start that tax year. Even those contractors doing income splits between PAYE/Divis don't know for sure how many billable days they may work in the next year or if the current contract will last that year.

POA should be optional if it really is being sold as a benefit to the self employed to pay their future tax in instalments.

Do we get interest from HMRC if we overpay tax via POA? If so is it at the same interest rate we have to pay for late tax payments? Could be a nice little earner if it was paying better interest rates than typical savings accounts.

[WordIsBond]

That feels wrong, not that it will stop HMRC of course. Dividends are 'bonuses' due to making profit where POA is for predicted income based on previous self assessment. Dividends are not usually predicted income, regardless of accountancy methods regarding PAYE/Divi splits as LTD based contractors.

Dividends are pretty well predictable by the time POA is due. For any particular tax year, the first payment is due 31 January (tax year is 80% complete by that point) and 31 July after the tax year. So you generally know whether your income is going to be more or less than the previous year.

If it is more or the same, you have to pay half of what you paid the previous year for each payment. If it is going to be less, you can work out about what your tax will be and ask for a POA reduction.

So it really isn't that bad. It means they get the money earlier than they would have, but not before you've received the income being taxed, and if it is too high for that income they will reduce it.

[northernladuk]

That feels wrong, not that it will stop HMRC of course. Dividends are 'bonuses' due to making profit where POA is for predicted income based on previous self assessment. Dividends are not usually predicted income, regardless of accountancy methods regarding PAYE/Divi splits as LTD based contractors.

As this divi tax will also affect those with investments in shares that pay divis maybe the rules for POA will be tweaked so not paying in advance for profits that aren't guaranteed.

But the way we use Divis it is predicted income which is exactly what HMRC are having a go at us for.... Bonuses should not normally be 75% of your income. So you are right in theory but the way we use them is different in HMRC's eyes.

Actually, they aren't bonuses at all thinking about it. They are returns on investment linked to profit so not a bonus??

[Hobosapien]

Under the new regime, the dividend tax is going to mean you owe enough tax to require payment on account from January 2018.

That feels wrong, not that it will stop HMRC of course. Dividends are 'bonuses' due to making profit where POA is for predicted income based on previous self assessment. Dividends are not usually predicted income, regardless of accountancy methods regarding PAYE/Divi splits as LTD based contractors.

As this divi tax will also affect those with investments in shares that pay divis maybe the rules for POA will be tweaked so not paying in advance for profits that aren't guaranteed.

[SpontaneousOrder]

It's the existing requirements. But if you pay yourself up to the higher rate threshold via low salary and then dividends, you won't have anything to pay on account because you don't owe tax. Under the new regime, the dividend tax is going to mean you owe enough tax to require payment on account from January 2018.

Oh, right. I see now. Thanks.

[TheFaQQer]

Is this POA talk just about the existing requirements for self-assessment? Or has there been a change scheduled?

It's the existing requirements. But if you pay yourself up to the higher rate threshold via low salary and then dividends, you won't have anything to pay on account because you don't owe tax. Under the new regime, the dividend tax is going to mean you owe enough tax to require payment on account from January 2018.

[SpontaneousOrder]

Yeah. I said when the change came in that HMRC would have a windfall in January 2017 from a lot of people bringing dividends forward into the 2015-2016 year. Obviously, if you are taking dividends in the higher rate band, it makes a lot more sense to do it this year than next. And anyone doing that needs to obviously be prepared to pay that tax next January, but also be thinking about how it affects POA.

Is this POA talk just about the existing requirements for self-assessment? Or has there been a change scheduled?

[WordIsBond]

Yeah. I said when the change came in that HMRC would have a windfall in January 2017 from a lot of people bringing dividends forward into the 2015-2016 year. Obviously, if you are taking dividends in the higher rate band, it makes a lot more sense to do it this year than next. And anyone doing that needs to obviously be prepared to pay that tax next January, but also be thinking about how it affects POA.

[SpontaneousOrder]

It's going to cost you £2k.

Deal with it.

A lot more than 2k.

[jamesbrown]

Isn't POA based on prior year's SA tax liability? If so, the first for basic rate taxpayers won't be until Jan 2018.

Yes, quite right, Jan 2018 for the 2016/17 tax year, assuming they don't do anything odd (some have already reported collection via their tax codes). However, anyone paying an extra dividend this year (above the higher rate limit) should bear that future liability in mind when reducing their POA for the 2016/17 tax year.

[WordIsBond]

Yes, the majority will be required to make payments on account. The lower bound is 1k, so anyone paying up to the higher rate limit with a majority in dividends (i.e. a ~2k liability) will need to put aside ~1k for Jan 2017 and ~1k for July 2017.

Isn't POA based on prior year's SA tax liability? If so, the first for basic rate taxpayers won't be until Jan 2018.

[jamesbrown]

Even (IIUC) basic rate people with divi tax to pay may well fall into this regime next year.

Yes, the majority will be required to make payments on account. The lower bound is 1k, so anyone paying up to the higher rate limit with a majority in dividends (i.e. a ~2k liability) will need to put aside ~1k for Jan 2017 and ~1k for July 2017.

[matzie]

Some more potentially bad news for you OP - you may well have to start making "payments on account" each January and July - so the first time around you're looking at a 50% extra to pay compared to what you're used to. Even (IIUC) basic rate people with divi tax to pay may well fall into this regime next year.

[Hobosapien]

Thanks guys.

I've mostly always had 'the max divi to remain within the basic tax bracket 'declared when the accountant preps the year end accounts, and due to me having already done so in the current tax year there is no legit workaround to avoid the April divi tax change, if indeed it goes ahead, without going into the higher personal tax bracket.

So to answer my 'am i right', yes I am.

Saved me a few quid as my accountant has an idiot question charge. Thankfully no cost asking here apart from the potential to be banned for bringing the professional forums into disrepute.