Interest on self assessment payment on account

Timaaeee

Hi, I have just received a statement from HMRC saying I owe interest on a payment on account I was not aware had been applied and I am wondering if I have grounds to contest it?

I pay the bulk of my tax through PAYE but have some additional property income. After submitting my tax return online for 22-23 I was asked to make a first payment of approx £1500 for the tax year 23-24, however I was not expecting to receive any property income for that year so I stated this online and requested to reduce the payment to zero. In July I received an email to say a second payment was due for £1500 so I again requested to reduce this to zero. I later realised that I had some investment earnings for 23-24 and owed about £1000 £2600 in tax which I paid immediately after submitting a return for that year.

I was therefore suprised to receive a statement today from HMRC saying I had interest payments owing from 23-24 tax year. It seems that rather than reducing my payments on account to zero they changed both of them to £1300 and had been charging me interest? 

If they had rejected my request to reduce the payment and thought I owed them money why did they not notify me of this? Also I saw somewhere that you do not have to make payments on account if more than 80% of your tax is PAYE which is true in my case?

thanks

[Deleted User]

You have some misunderstandings. 

1) You cannot reduce individual payments on account. If, for example, you have payments on account of £2000 each but believe that your liability will only be £1500, you reduce EACH to £750. 

2) if 80% of your TOTAL liability for 2022/23, not 2023/24, is deducted at source you would not have payments on account for 2023/24. Even if 80% of your TOTAL liability for 2023/24 was deducted at source the payments on account for that year stand. Payments on account are calculated by reference to the PREVIOUS year. 

In your case, you have payments on account of c£1500 each, so £3000 in total for 2023/24. Even if your liability for 2023/24 turned out to be £100, payments on account would be reduced to £50 each - they still remain! The 80% rule is irrelevant- it applied to 2022/23 when calculating your POA for 2023/24. 

You would not, however, have payments on account for 2024/25.

3) HMRC do not reject requests to reduce payments on account in the knowledge that interest will be payable should the taxpayer reduce by too much, as in your case. 

Can you review your position in the light of that?

Timaaeee

[Deleted User] said:

You have some misunderstandings. 

1) You cannot reduce individual payments on account. If, for example, you have payments on account of £2000 each but believe that your liability will only be £1500, you reduce EACH to £750. 

2) if 80% of your TOTAL liability for 2022/23, not 2023/24, is deducted at source you would not have payments on account for 2023/24. Even if 80% of your TOTAL liability for 2023/24 was deducted at source the payments on account for that year stand. Payments on account are calculated by reference to the PREVIOUS year. 

You would not, however, have payments on account for 2024/25.

Can you review your position in the light of that?

thanks. I reduced each of the payments to zero. I would have to check but I believe I have always paid around 90% of my tax through PAYE but whenever I have completed a self-assessment I have been asked for a payment on account, some of which I have previously asked to be reduced without any issue which is why I assumed had happened in this case as I did not hear otherwise? 

I have always paid the amount owing immediately after submitting a return and being presented with a bill so it seems unreasonable for HMRC to be now saying I owe them money for something they had not notified me about?

[Deleted User]

Timaaeee said:

[Deleted User] said:

You have some misunderstandings. 

1) You cannot reduce individual payments on account. If, for example, you have payments on account of £2000 each but believe that your liability will only be £1500, you reduce EACH to £750. 

2) if 80% of your TOTAL liability for 2022/23, not 2023/24, is deducted at source you would not have payments on account for 2023/24. Even if 80% of your TOTAL liability for 2023/24 was deducted at source the payments on account for that year stand. Payments on account are calculated by reference to the PREVIOUS year. 

You would not, however, have payments on account for 2024/25.

Can you review your position in the light of that?

thanks. I reduced each of the payments to zero. I would have to check but I believe I have always paid around 90% of my tax through PAYE but whenever I have completed a self-assessment I have been asked for a payment on account, some of which I have previously asked to be reduced without any issue which is why I assumed had happened in this case as I did not hear otherwise? 

I have always paid the amount owing immediately after submitting a return and being presented with a bill so it seems unreasonable for HMRC to be now saying I owe them money for something they had not notified me about?

Reducing to zero would attract interest if there was ANY liability for 2023/24. 

I had further added to my post before your reply. Hopefully it helps. These rules have not altered since self-assessment was introduced some 27 years ago!

Dazed_and_C0nfused

Timaaeee said:

Hi, I have just received a statement from HMRC saying I owe interest on a payment on account I was not aware had been applied and I am wondering if I have grounds to contest it?

I pay the bulk of my tax through PAYE but have some additional property income. After submitting my tax return online for 22-23 I was asked to make a first payment of approx £1500 for the tax year 23-24, however I was not expecting to receive any property income for that year so I stated this online and requested to reduce the payment to zero. In July I received an email to say a second payment was due for £1500 so I again requested to reduce this to zero. I later realised that I had some investment earnings for 23-24 and owed about £1000 in tax which I paid immediately after submitting a return for that year.

I was therefore suprised to receive a statement today from HMRC saying I had interest payments owing from 23-24 tax year. It seems that rather than reducing my payments on account to zero they changed both of them to £1300 and had been charging me interest? 

If they had rejected my request to reduce the payment and thought I owed them money why did they not notify me of this? Also I saw somewhere that you do not have to make payments on account if more than 80% of your tax is PAYE which is true in my case?

thanks

You have fundamentally misunderstood a few things there.

The need for POA for 2023-24 is purely determined by your 2022-23 liability.  All that your 2023-24 return does is finalise the amount of those POA.

Also, different sources of income have no part to play with POA.  If POA for 2023-24 were required because of your 2022-23 liability then it doesn't matter why there is tax to pay for 2023-24, having tax to pay from investment earnings instead of property income is completely irrelevant.

Also, your post doesn't really make sense in some places.  If the 2023-24 POA were originally £1,500 each and your total Self Assessment liability for 2023-24 was £1,000 then each POA cannot be more than £500.

From your 2023-24 return the 80% rule will determine if POA are needed for 2024-25, not 2023-24.

If you paid the £1,000 immediately after submitting your return then you will owe either one or two interest charges.

1st POA would have been payable on 31/01/2024 so interest applies from them until you paid it.

2nd POA would have been payable on 31/07/2024 so interest applies from them until you paid it.  If your 2023-24 return was file fairly early and you paid the tax straight after filing them there may not be an interest charge for the second POA.

There really isn't anything for you to contest, the interest is being charged because you had the money in your account when it should have been in HMRC's account.

Dazed_and_C0nfused

Timaaeee said:

[Deleted User] said:

You have some misunderstandings. 

1) You cannot reduce individual payments on account. If, for example, you have payments on account of £2000 each but believe that your liability will only be £1500, you reduce EACH to £750. 

2) if 80% of your TOTAL liability for 2022/23, not 2023/24, is deducted at source you would not have payments on account for 2023/24. Even if 80% of your TOTAL liability for 2023/24 was deducted at source the payments on account for that year stand. Payments on account are calculated by reference to the PREVIOUS year. 

You would not, however, have payments on account for 2024/25.

Can you review your position in the light of that?

thanks. I reduced each of the payments to zero. I would have to check but I believe I have always paid around 90% of my tax through PAYE but whenever I have completed a self-assessment I have been asked for a payment on account, some of which I have previously asked to be reduced without any issue which is why I assumed had happened in this case as I did not hear otherwise? 

I have always paid the amount owing immediately after submitting a return and being presented with a bill so it seems unreasonable for HMRC to be now saying I owe them money for something they had not notified me about?

You doubtless have an interest charge(s) for the simple reason you paid the tax late.

Paying straight after you submit your return doesn't mean tax isn't being paid late.

And they had notified you, you yourself said there were POA for 2023-24.  You chose to reduce them.  That was where you went wrong really.

And notwithstanding any of the above, at the end of the day this is Self Assessment.

Timaaeee

Dazed_and_C0nfused said:

You have fundamentally misunderstood a few things there.

The need for POA for 2023-24 is purely determined by your 2022-23 liability.  All that your 2023-24 return does is finalise the amount of those POA.

Also, different sources of income have no part to play with POA.  If POA for 2023-24 were required because of your 2022-23 liability then it doesn't matter why there is tax to pay for 2023-24, having tax to pay from investment earnings instead of property income is completely irrelevant.

Also, your post doesn't really make sense in some places.  If the 2023-24 POA were originally £1,500 each and your total Self Assessment liability for 2023-24 was £1,000 then each POA cannot be more than £500.

From your 2023-24 return the 80% rule will determine if POA are needed for 2024-25, not 2023-24.

If you paid the £1,000 immediately after submitting your return then you will owe either one or two interest charges.

1st POA would have been payable on 31/01/2024 so interest applies from them until you paid it.

2nd POA would have been payable on 31/07/2024 so interest applies from them until you paid it.  If your 2023-24 return was file fairly early and you paid the tax straight after filing them there may not be an interest charge for the second POA.

There really isn't anything for you to contest, the interest is being charged because you had the money in your account when it should have been in HMRC's account.

I presume the 23-24 POA were set at £1500 each because in 22-23 my SA bill was £3000 (not including PAYE), however after doing my SA for 23-24 the outstanding bill was actually around £1000 £2600?

I had previously thought that:

- if the self assessment for 23-24 was not due till Jan 25 then completing it at this time and making payment immediately after would not be deemed as being late, after all how can I be expected to pay a tax bill before it has been calculated?

- that POA were to have money ready in your account ready to pay the bill once it had been calculated and help people budget for their tax bill, not that they were actually a pre-emptive tax bill to be adjusted on completion of SA and would incur penalties in the same way as the final bill?

Anyway I have clearly misunderstood (and probably got some terminology wrong) so feel free to correct me. At the very least I think that after submitting an online request to reduce the POA it should say that you will not be notified if the request is refused and that you will need to check your online account a few days later - if that is the expected procedure?

thanks

[Deleted User]

As before, a request to reduce payments on account are never refused. 

Hopefully you previous thinking as you have outlined has been updated. 

On your first point: 

2023/24 tax is due as follows:

First payment on account (if appropriate) on 31st January 2024.

Second payment on account (if appropriate) on 31st July 2024

Any balance due 31st January 2025. 

Nothing has changed regarding this in 27 years!

The payments on account are not ‘pre-emptive’ of 2023/24. Bear in mind that the second one is almost four months after the end of the tax year.

You also should bear in mind that if, for example you had made the payments on account totalling £3000 and your liability transpired to be less than that, it would be HMRC paying you interest. 

Timaaeee

[Deleted User] said:

As before, a request to reduce payments on account are never refused. 

Hopefully you previous thinking as you have outlined has been updated. 

On your first point: 

2023/24 tax is due as follows:

First payment on account (if appropriate) on 31st January 2024.

Second payment on account (if appropriate) on 31st July 2024

Any balance due 31st January 2025. 

Nothing has changed regarding this in 27 years!

The payments on account are not ‘pre-emptive’ of 2023/24. Bear in mind that the second one is almost four months after the end of the tax year.

You also should bear in mind that if, for example you had made the payments on account totalling £3000 and your liability transpired to be less than that, it would be HMRC paying you interest. 

ok thanks for your help!

well what it actually says in the statement on 31st Jan is:

£1500   1st payment on account due for year 23/24

-£1500  claim to reduce 1st payment on account for year 23/24

£1300   Adjustment to 1st payment on account for year 23/24 from Return

and then similar in July

I was requested to pay the £1500 then I asked to reduce it to zero, I never remember being asked to pay this £1300 adjustment figure in either Jan or July?

thanks

Dazed_and_C0nfused

Timaaeee said:

[Deleted User] said:

As before, a request to reduce payments on account are never refused. 

Hopefully you previous thinking as you have outlined has been updated. 

On your first point: 

2023/24 tax is due as follows:

First payment on account (if appropriate) on 31st January 2024.

Second payment on account (if appropriate) on 31st July 2024

Any balance due 31st January 2025. 

Nothing has changed regarding this in 27 years!

The payments on account are not ‘pre-emptive’ of 2023/24. Bear in mind that the second one is almost four months after the end of the tax year.

You also should bear in mind that if, for example you had made the payments on account totalling £3000 and your liability transpired to be less than that, it would be HMRC paying you interest. 

ok thanks for your help!

well what it actually says in the statement on 31st Jan is:

£1500   1st payment on account due for year 23/24

-£1500  claim to reduce 1st payment on account for year 23/24

£1300   Adjustment to 1st payment on account for year 23/24 from Return

and then similar in July

I was requested to pay the £1500 then I asked to reduce it to zero, I never remember being asked to pay this £1300 adjustment figure in either Jan or July?

thanks

You really are complicating things now.

In an earlier post you said the actual 2023-24 liability was £1,000.  But for the bits in bold to have happened it must have been £2,600.

I later realised that I had some investment earnings for 23-24 and owed about £1000 in tax which I paid immediately after submitting a return for that year.

Basically each POA was £1,500. 

You asked for them to be reduced to £0.

You then filed your return and each POA was reinstated to £1,300 (which was presumably based on your return showing liability of £2,600).

You cannot have filed the return until 6 April 2024 and as the first POA was payable on 31 January 2024 there is bound to be a late payment interest charge if you didn't pay the tax due until after you filed the return.

[Deleted User]

Dazed_and_C0nfused said:

Timaaeee said:

[Deleted User] said:

As before, a request to reduce payments on account are never refused. 

Hopefully you previous thinking as you have outlined has been updated. 

On your first point: 

2023/24 tax is due as follows:

First payment on account (if appropriate) on 31st January 2024.

Second payment on account (if appropriate) on 31st July 2024

Any balance due 31st January 2025. 

Nothing has changed regarding this in 27 years!

The payments on account are not ‘pre-emptive’ of 2023/24. Bear in mind that the second one is almost four months after the end of the tax year.

You also should bear in mind that if, for example you had made the payments on account totalling £3000 and your liability transpired to be less than that, it would be HMRC paying you interest. 

ok thanks for your help!

well what it actually says in the statement on 31st Jan is:

£1500   1st payment on account due for year 23/24

-£1500  claim to reduce 1st payment on account for year 23/24

£1300   Adjustment to 1st payment on account for year 23/24 from Return

and then similar in July

I was requested to pay the £1500 then I asked to reduce it to zero, I never remember being asked to pay this £1300 adjustment figure in either Jan or July?

thanks

You really are complicating things now.

In an earlier post you said the actual 2023-24 liability was £1,000.  But for the bits in bold to have happened it must have been £2,600.

I later realised that I had some investment earnings for 23-24 and owed about £1000 in tax which I paid immediately after submitting a return for that year.

Basically each POA was £1,500. 

You asked for them to be reduced to £0.

You then filed your return and each POA was reinstated to £1,300 (which was presumably based on your return showing liability of £2,600).

You cannot have filed the return until 6 April 2024 and as the first POA was payable on 31 January 2024 there is bound to be a late payment interest charge if you didn't pay the tax due until after you filed the return.

Clearly, as you say, the total due for 2023/24 was £2600 or so! 

There is, therefore, reasonable likelihood of payments on account for 2024/25 also unless, of course, this represented less than 20% of total tax liability for 2023/24!