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southmartin

How legal is HMRC 'payment on account'

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Are there any sole traders out there familiar with this? I've always run ltd companies so not come across it before, but it seems to be HMRCsa way or extorting tax from people on money they've not earned yet.

For example, if a sole trader earns £20k in the first year then they pay the tax due, but HMRC 'calculates' that they'll earn the same in the following year and demands the tax BEFORE then year is complete... This means sole traders appear to be paying double taxation in their startup year..

I just can't see how this is fair. Nor - to be honest - if they took you to court for non-payment, how on earth a judge could rule against you as you\d not actually earned the money you were being asked to pay tax upon!

Is this right - does anyone have any knowledge/experience of this?

many thanks 

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dgul   

It is their way of converting the old self-employed 'pay up to 21 months after you got the income' to something closer to PAYE (say, pay up to 6 months after you got the income).

It might make sense for HMRC, but it is horrendous for the self-employed as you get 1.5 time the tax bill at 21 months in, a very shaky time for many new businesses and the self-employed.  I think it is designed by accountants for whom it is obvious that you have to put aside 105% of potential liabilities as you go along, but far less so for normal people for whom the old tax system was fairly understandable and where there's now an extra payment.

I think HMRC were too quick to change their system and it is too likely that people will get caught out by this.  It should have been phased in a bit more slowly (25% of the future liability at the Jan point, say).

It is also horrendous for people who have a large one-off payment, where you've got to pay the tax on income that'll never come.  Again, payment of 25%+25% would keep that overpayment to a minimum.

But, it does give HMRC a one-off boost to income, which is something we might have seen in Jan and we'll see again in July, but which won't be seen again.

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But how can it be legally enforceable? I mean, what are they going to say in a courtroom... Or when a judge asks "why haven't you paid the tax Mr Smith" to which the reply of "Because I haven't earned the money i\m being taxed on yet"

I simply can't see how HMRC can bully sole traders into it. I mean, if you don' have the money, you don't have it

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Chrippie   

Don't forget you are allowed to reduce payments on account. You have to give a reason, but if it turns out you reduced them by more than you should have done you just have to pay interest there aren't penalites on this. 

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dgul   
2 hours ago, southmartin said:

But how can it be legally enforceable? I mean, what are they going to say in a courtroom... Or when a judge asks "why haven't you paid the tax Mr Smith" to which the reply of "Because I haven't earned the money i\m being taxed on yet"

I simply can't see how HMRC can bully sole traders into it. I mean, if you don' have the money, you don't have it

I know what you mean.  They shouldn't have set the assumed rate at 50% for the Jan payment.  It is punishing the self-employed where income can be highly irregular.

 

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4 hours ago, dgul said:

I know what you mean.  They shouldn't have set the assumed rate at 50% for the Jan payment.  It is punishing the self-employed where income can be highly irregular.

 

This has been around for many years, and realistically should be looked at as a 'payment on profit you have made but not told us about yet'

It was a one off boost when introduced but now just rolls along.

Since you will actually know your income for the 'advanced' payment period before you have to pay it, as stated above you can ask for it to be reduced.

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ccc   

Just put it at zero and put in a vague reason in the notes box on your online return. I've done this many times.

"Expect to be under threshold next tax year"

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ccc   
3 hours ago, Turned Out Nice Again said:

go Ltd to avoid this nonsense.

Ah. When I do my tax return I am not classed as self employed as through ltd.

Does a sole trader not get this option and has to pay this ? :huh:

*******.

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chronyx   

I got walloped this year. Based on previous years I was thinking they'd take half of my set aside at most. They cleared me out:(

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ccc   
8 hours ago, chronyx said:

I got walloped this year. Based on previous years I was thinking they'd take half of my set aside at most. They cleared me out:(

Are you a sole trader or LTD ? If LTD its easy just not to bother paying !!

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ccc   

Ah. What a bunch of absolute *****.

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On 5/19/2017 at 2:07 AM, Turned Out Nice Again said:

go Ltd to avoid this nonsense.

Well not really, you still have to do payment on account for income tax dividend payments, so if those vary wildly year to year you can end up in the same boat.

Edited by goldbug9999

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ccc   
1 hour ago, goldbug9999 said:

Well not really, you still have to do payment on account for income tax dividend payments, so if those vary wildly year to year you can end up in the same boat.

No - as I said previously you can just tick the box not to pay it and put a one liner in the notes box provided.

I've done it numerous times with no issue. 

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12 hours ago, goldbug9999 said:

Well not really, you still have to do payment on account for income tax dividend payments, so if those vary wildly year to year you can end up in the same boat.

I've never come up against that and my pay is mostly dividends. Perhaps I don't earn enough to be affected!

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