Quick summary of impending changes in April

[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]

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.

[SpontaneousOrder]

It's going to cost you £2k.

Deal with it.

A lot more than 2k.

[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]

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?

[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]

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.

[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.

[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??

[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.