Payment on Account question if under the PA

MetaPhysical

Hello,
I helped my fiancee complete her first Self Assessment for FY 23-24.  She was in employment but also has a small side gig going on Etsy so she had to do a SA.  We have done this, it wasn't so difficult and she owes about £1200 in tax.  We expected this and have the money to pay it.  Cool.

We also have a to pay another half of this bill - £600 - as a payment on account towards this tax year (24-25).  I expected this so, again, we have the money to pay this.  However, in FY 24-25 she finished her full time job and has reduced the amount she sells such that her profit and earnings will be under the PA of £12570.  I have advised her to do her SA immediately after April 6th 2025 so that when she submits it HMRC systems will "catch up" such that she may not need to pay the other half of the Payment on Account due in July 25????  I know this always corrects itself eventually but i would rather not pay the Payment on account at all since she will 100% be under the PA.

What's the best way of tackling this situation please?

TIA

TheSpectator

If you are 100% sure there will be no liability for 24/25 then make a claim to reduce the POA's to nil would seem the obvious answer?

Nomunnofun1

If you are absolutely sure that no tax will be due in 2024/25 reduce each payment to NIL. 

You can do this on the portal. 

You could also amend the return and use the option to reduce POAs just before submission but the first option is the way to go. 

No need to make a POA in January. 

MetaPhysical

Ah, I wasn't aware you could do that, many thanks for that.  We have yet to submit the SA whilst she rechecks her numbers so will look int that before pressing the final button.

Nomunnofun1

MetaPhysical said:

Ah, I wasn't aware you could do that, many thanks for that.  We have yet to submit the SA whilst she rechecks her numbers so will look int that before pressing the final button.

It’s one of the last questions asked. 

MetaPhysical

Nomunnofun1 said:

MetaPhysical said:

Ah, I wasn't aware you could do that, many thanks for that.  We have yet to submit the SA whilst she rechecks her numbers so will look int that before pressing the final button.

It’s one of the last questions asked. 

Yeah, one of those questions that my eyes glaze over by the time I get to the end of the return! 😆  We will look into it again.  Many thanks once again.

Dazed_and_C0nfused

MetaPhysical said:

Nomunnofun1 said:

MetaPhysical said:

Ah, I wasn't aware you could do that, many thanks for that.  We have yet to submit the SA whilst she rechecks her numbers so will look int that before pressing the final button.

It’s one of the last questions asked. 

Yeah, one of those questions that my eyes glaze over by the time I get to the end of the return! 😆  We will look into it again.  Many thanks once again.

Just so you are aware, POA are unrelated to the source of the tax liability.

So if you reduce the 2024-25 POA on the basic that the existing income sources will not result in any tax liability for 2024-25 but she has a completely new source of income, say from letting property, which means she has any liability for 2024-25 then the POA will be reinstated and interest charged on any tax paid late.

For example if you reduce the 2024-25 POA from £600 to £0 and her actual 2024-25 tax liability is say £150 (in total) then each POA for 2024-25 would be reinstated as £75 and interest charged from the normal dates (31 January 2025 and 31 July 2025) on anything paid late.

MetaPhysical

What we may do is to drop the PoA to say £100 just to cater for the remote possibility she will go slightly over the £PA.  However, her profits so far (Dec) are £7000 and there are no other sources of income and so it is highly unlikely she'd break the £PA amount and if it looked liked she'd risk doing so she'd stop selling stuff for a bit to be certain she didn't.

Many thanks all for your kind help answering my query. I [think] I understand it now and will adjust the PoA accordingly.

LITRG

Hello. We are the Low Incomes Tax Reform Group (LITRG), part of the Chartered Institute of Taxation who are an educational charity. We are not part of HMRC or MSE. Although we can’t give individual advice, you might find our website information about payments on account useful: https://www.litrg.org.uk/working/self-employment/paying-tax-self-employed-profits-and-making-payments-account. If you require further help, we recommend that you contact a tax adviser, HMRC or one of the tax charities where relevant. You can find more information about where to get help with tax here: https://www.litrg.org.uk/tax-nic/getting-help-tax. Thanks.

eskbanker

MetaPhysical said:

What we may do is to drop the PoA to say £100 just to cater for the remote possibility she will go slightly over the £PA.  However, her profits so far (Dec) are £7000 and there are no other sources of income and so it is highly unlikely she'd break the £PA amount and if it looked liked she'd risk doing so she'd stop selling stuff for a bit to be certain she didn't.

Seems overkill to be so determined to avoid paying tax - surely 80% of something is better than 100% of nothing?

MetaPhysical

eskbanker said:

MetaPhysical said:

What we may do is to drop the PoA to say £100 just to cater for the remote possibility she will go slightly over the £PA.  However, her profits so far (Dec) are £7000 and there are no other sources of income and so it is highly unlikely she'd break the £PA amount and if it looked liked she'd risk doing so she'd stop selling stuff for a bit to be certain she didn't.

Seems overkill to be so determined to avoid paying tax - surely 80% of something is better than 100% of nothing?

eskbanker said:

MetaPhysical said:

What we may do is to drop the PoA to say £100 just to cater for the remote possibility she will go slightly over the £PA.  However, her profits so far (Dec) are £7000 and there are no other sources of income and so it is highly unlikely she'd break the £PA amount and if it looked liked she'd risk doing so she'd stop selling stuff for a bit to be certain she didn't.

Seems overkill to be so determined to avoid paying tax - surely 80% of something is better than 100% of nothing?

Indeed.  The context though is if we were in breach of our PoA amount.