Self Employed Payments on Account making me nervous!

tomhainesmusic_2

Hi,

I'm hoping that somebody can help me on here with a query.

I've just completed my tax return for 23/24 after what was a really good year of freelance earnings (between 40-60% up from anything I've earned in any previous year)

However, my income streams can be very erratic and unpredictable and I am nervous that my 24/25 won't be as good and that I won't be able to save enough tax from my earnings to afford the payments on account in Jan / July 2025, especially with the large balancing payment on top.

So, my question is this - what can I do about it if my year starts to suggest I'll not earn as much? Can HMRC reduce the amount if I contact them?

Despite being self-employed for over a decade, I've never had to call HMRC for anything, and I'm always very much on top of all my book-keeping, tax savings and financial matters generally (hence being able to complete the tax return so soon after the end of the financial year!)

Any help or advice is very gratefully received,

Thankyou in advance,

Tom

 

mebu60

You can reduce your payments on account online yourself. However! If you do this be aware that if your subsequent tax liability exceeds the reduced amount there will be backdated interest to pay on the difference up to the original POA amount. So err on the side of caution. Remembering that if the POAs exceed the subsequent tax liability you will get a rebate :-)

MattMattMattUK

tomhainesmusic_2 said:

Hi,

I'm hoping that somebody can help me on here with a query.

I've just completed my tax return for 23/24 after what was a really good year of freelance earnings (between 40-60% up from anything I've earned in any previous year)

However, my income streams can be very erratic and unpredictable and I am nervous that my 24/25 won't be as good and that I won't be able to save enough tax from my earnings to afford the payments on account in Jan / July 2025, especially with the large balancing payment on top.

So, my question is this - what can I do about it if my year starts to suggest I'll not earn as much? Can HMRC reduce the amount if I contact them?

Despite being self-employed for over a decade, I've never had to call HMRC for anything, and I'm always very much on top of all my book-keeping, tax savings and financial matters generally (hence being able to complete the tax return so soon after the end of the financial year!)

Any help or advice is very gratefully received,

Thankyou in advance,

Tom 

You can reduce them at any time via your online tax account. If you reduce them and then it turns out you should have not then HMRC will charge you interest on the difference between what you paid and what you should have paid.

https://www.gov.uk/understand-self-assessment-bill/payments-on-account

Do you out money aside every time your customers pay you to cover any tax liabilities? If not it would be wise to do so. 

Dazed_and_C0nfused

tomhainesmusic_2 said:

Hi,

I'm hoping that somebody can help me on here with a query.

I've just completed my tax return for 23/24 after what was a really good year of freelance earnings (between 40-60% up from anything I've earned in any previous year)

However, my income streams can be very erratic and unpredictable and I am nervous that my 24/25 won't be as good and that I won't be able to save enough tax from my earnings to afford the payments on account in Jan / July 2025, especially with the large balancing payment on top.

So, my question is this - what can I do about it if my year starts to suggest I'll not earn as much? Can HMRC reduce the amount if I contact them?

Despite being self-employed for over a decade, I've never had to call HMRC for anything, and I'm always very much on top of all my book-keeping, tax savings and financial matters generally (hence being able to complete the tax return so soon after the end of the financial year!)

Any help or advice is very gratefully received,

Thankyou in advance,

Tom

 

You don't need to call HMRC you should be able to make a claim to reduce the POA online (a few days after your 2023-24 return is filed).

The main thing you need to remember is that the reason for owing tax is utterly irrelevant when it comes to POA.

Say your 2024-25 POA are £4,000 each and you reduce them to £2,000 (each) on the basis your self employment profits will be less.

If, when you come to file your 2024-25 tax return your total liability is actually say £7,000 then each POA would be increased from £2,000 to £3,500 and you would be charged interest on anything paid late.

Why it was £7,000 doesn't alter anything, could be you received a non taxable windfall and earned loads of (taxable) interest for the first time, which meant the liability was £7,000.  The POA would be increased as the reason the liability was £7,000 doesn't matter.
NB.  Each POA could not exceed £4,000 each using my example.

All the above relates to liability that can be included in POA, not things like CGT which are ignored for POA purposes.

tomhainesmusic_2

Thanks so much for your replies.  This is a such a relief!

I am a stickler for setting tax savings aside every month and my calculations are usually spot on as I go through the year, so when the payment dates come around I'm usually exactly where I need to be! I'm probably just lacking the belief that 24-25 will be as good as 23-24!

Dazed_and_C0nfused

tomhainesmusic_2 said:

Thanks so much for your replies.  This is a such a relief!

I am a stickler for setting tax savings aside every month and my calculations are usually spot on as I go through the year, so when the payment dates come around I'm usually exactly where I need to be! I'm probably just lacking the belief that 24-25 will be as good as 23-24!

You also need to remember that the first POA isn't payable for another 9 months yet so you have plenty of time to understand the likely position for 2024-25 and can make any claim to reduce POA nearer the time.

Marcon

tomhainesmusic_2 said:

Thanks so much for your replies.  This is a such a relief!

I am a stickler for setting tax savings aside every month and my calculations are usually spot on as I go through the year, so when the payment dates come around I'm usually exactly where I need to be! I'm probably just lacking the belief that 24-25 will be as good as 23-24!

Nothing to stop you paying HMRC as you go along - and you get interest on tax paid early!

Dazed_and_C0nfused

Marcon said:

tomhainesmusic_2 said:

Thanks so much for your replies.  This is a such a relief!

I am a stickler for setting tax savings aside every month and my calculations are usually spot on as I go through the year, so when the payment dates come around I'm usually exactly where I need to be! I'm probably just lacking the belief that 24-25 will be as good as 23-24!

Nothing to stop you paying HMRC as you go along - and you get interest on tax paid early!

Only if it is used against a liability and then refunded or moved to another amount owed.

If you simply pay early and the money is then allocated to tax due on say 31 January 2025 no interest will be credited.