Payments on Account - can I reduce to zero?

Larabar

Hi all,

Looking for some advice. I'm an individual and have completed a self-assessment every year since 2011, due to having a rental property. I'm a PAYE salaried employee for my main income.

For my 2022-23 self-assessment I'm being asked to make payments on account for 23-24 because (for the first time ever) my income tax paid was not 80% or more of my total liability. Frustratingly it was 79% (!) so I wish I'd just made an additional small pension payment to avoid this situation.

However, for 23-24 and onwards I know I will pay 80% or more via income deducted at source as I sold my rental property in 2022 and my PAYE position will be my only source of income. In the past though it wasn't just my rental property income that caused me to owe tax, even with it gone I know I will still end up owing HMRC at the end of financial year as I'm never deducted enough from my salary. As it stands today I'm tracking to have paid 86% of my tax at source for 23-24.

Can anyone advise on whether:
a) I have to make payments on account for 23-24 because I didn't hit 80% in 22-23, even though I will do in 23-24
or
b) I can use the justification of reduced income and assertion that I will pay >80% of my tax at source in the next tax year, to adjust my PoA to £0, and even though I will still end up owing HMRC tax for 23-24, as long as I've paid at least 80% at source I can make that payment by 31st Jan 25 won't be charged interest

Currently I'm thinking of reducing the payments to cover the amount I would have owed without the rental income (to cover my projected 23-24 PAYE shortfall), going ahead with the first PoA, then filing ahead of July 24 so that the 31st July payment can be adjusted to match what I actually owe.

However, I would rather do option B where I make no advance payments and just settle up in Jan 25, but I'm concerned about interest / penalties when my tax liability is above the PoA amount.

[Deleted User]

You are massively over complicating this..

Firstly you can reduce the payments on account to whatever you want.  HMRc don’t care - they will charge interest as I will clarify.  If you reduce by too much and the payments on account that you actually make do not cover the resultant tax liability in 2023/24, you will pay interest on each payment.

In  b) the important figure for 2023/24 is the total liability outstanding NOT 80% of your liability paid at source. In other words if you ultimately owe, say, £4000 each payment on account would need to be at least £2000. The 80% rule is only taken into account to determine whether or not payments on account are due for the FOLLOWING year. 

Your best option is to calculate what you owe for 2023/24, give yourself a bit of leeway, and pay half of that as a payment on account on 31st January. Then , submit your return as quickly as possible after 6th April and adjust second payment on account due in July accordingly. 

Your final paragraph - resounding No! for the reason that so have already given. 

Dazed_and_C0nfused

[Deleted User] said:

You are massively over complicating this. HMRc don’t care - they will charge interest as I will clarify.

Firstly you can reduce the payments on account to whatever you want. However, if you reduce by too much and the payments on account that you actually make do not cover the resultant tax liability in 2023/24, you will pay interest on each payment.

In  b) the important figure for 2023/24 is the total liability outstanding NOT 80% of your liability paid at source. In other words if you ultimately owe, say, £4000 each payment on account would need to be at least £2000. The 80% rule is only taken into account to determine whether or not payments on account are due for the FOLLOWING year. 

Your best option is to calculate what you owe for 2023/24, give yourself a bit of leeway, and pay half of that as a payment on account on 31st January. Then , submit your return as quickly as possible after 6th April and adjust second payment on account due in July accordingly. 

Your final paragraph - resounding No! for the reason that so have already given. 

This all day long ^^^^

The requirement for POA is based on the prior years tax return.  The return for the POA year merely determines if the POA (where required by the previous years return) need to be reduced or not.

So in your situation if it turns out you owe say £20 for 2023-24 them each POA would be £10.  The £1000 limit and 80% rule don't apply, they are relevant for 2024-25