Payments On Account - Am I Paying Too Much Tax?

polymaff

We need to clarify the term "factored in".

Details of PoA arising do appear at the end of the SA302 calculation - but they are not "factored in"to the SA302 calculation - they are just extra liabilities that arise as a result of the SA302 calculation.

And they have been in the SA302 - like this - for many years, Darkstorne.

That info is added to your SA300 Self Assessment Statement and, as a result, the amounts you have to pay on set dates are updated. It is no different from what happens when a number of purchases hit your credit card account.

I don't think that we can say much more.

DoctorStrange

Lots of knowledgeable people here so thought I'd ask a question in the same thread as it seems OP is now happy with the answers (with my apologies to the OP if not for hijacking his thread!)

I'm recently self employed but will be due a rebate this tax year as I got my bonus from employment in April and I've not earned anything personally since. As such, I don't expect any payment on account in January 2020. In April 2020, I intend to take some profits so will have the 7.5%/32.5% tax to pay by 31st January 2021.

At that point, am I expected to pay 50% of that bill as payment on account for the next tax year? If so, I don't understand how that's not "paying in advance".

Or have I got it wrong and the tax due on a dividend paid in April 2020 will be due in January 2022, so any 50% bill at that point is actually to cover April 2021 to April 2022?

polymaff

Payments on account are never due until at least nine months into the relevant tax year. As this is 75% into the tax year and you are only being asked for 50% of the tax liability, the only way this can be considered to be payments in advance is if your income flow is very back-loaded.

Just clarify - when in April 2020 will you receive these dividends?

TheCyclingProgrammer

Almost 10 months in fact!

DoctorStrange it sounds like you aren’t self employed but in fact a shareholder (and possibly director) of a Ltd company, inferring from your reference to profits and dividend tax rates.

Assuming you’re currently not making payments on account, then any tax due on dividends taken in the 20/21 tax year (so on or after 6 April 2020) will be due by 31 Jan 2022, along with half the tax due as your first payment on account towards the 21/22 tax year (the second due in July 2022).

If you intend to take the dividends at the end of the 19/20 tax year instead (so before 6 April) the tax and first POA for 20/21 will be due in Jan 2021.

If the dividend is a one off and you do not anticipate owing any tax in the following tax year you can apply to reduce your POAs.

DoctorStrange

Thanks very much TCP and Polymaff

Apologies if self-employed is the incorrect term - I do run my own business as a director of a limited company.

I'll hoping to take c£42k as a dividend on 7/4/20, then £8k salary to 5/4/21. If I'm reading you right, that means settling the 20/21 tax bill in full on 31/1/22, as well as 50% of my 21/22 bill at the same time (which will be 10 months into that tax year and so not in advance)


Thanks!

00ec25

DoctorStrange wrote: »

I'll hoping to take c£42k as a dividend on 7/4/20, then £8k salary to 5/4/21. If I'm reading you right, that means settling the 20/21 tax bill in full on 31/1/22, as well as 50% of my 21/22 bill at the same time (which will be 10 months into that tax year and so not in advance)
Thanks!

correct, as the value of (dividend) tax expected for 21/22 is > £1,000 you are placed into the PoA process

thankfully you are bright enough to understand the timeline and the fact PoA is not in advance in the way the first poster thinks

however, as you note, "self employed" is entirely the wrong description for your circumstance. You are an employee of the company that you own. One life, 2 hats: employee/director and shareholder/owner. You are a director working for ("you") the owner, that is not self employment, it is employment.

uknick

DoctorStrange wrote: »

Thanks very much TCP and Polymaff

Apologies if self-employed is the incorrect term - I do run my own business as a director of a limited company.

I'll hoping to take c£42k as a dividend on 7/4/20, then £8k salary to 5/4/21. If I'm reading you right, that means settling the 20/21 tax bill in full on 31/1/22, as well as 50% of my 21/22 bill at the same time (which will be 10 months into that tax year and so not in advance)


Thanks!

Don't forget about your corporation tax bill to be paid about 9 months after your company's financial year end. If you're taking £42k in dividends your CT may be at least £8k, assuming you took all the profits in dividends.