Changing from self-employed to PAYE?

[mr-jones]

Hello - I freelance in the TV industry (sole trader - accounts run April thru' March) but have been offered a job (PAYE) to start around October. Assuming I'll be paying my on-account payment in July, will I have to continue on-account payments the following January and so on, given my new PAYE status?

I always thought (incorrectly no doubt!) that 'on-account' meant 'advanced' payment, i.e. paying tax on monies not yet earnt yet.... leading to the most annoying aspect of sole trading/ freelancing: having your January payment increase on the basis of a 'balance on account' from the previous year, even though you met all the payments in January and July!

It all seems so overly complex and confusing.

Many thanks to all who reply -

DaveH

 

[Merlion ABS]

Payments on account are there to reduce the burden of paying a big lump sum in January each year.

You are correct that the Payments on Account are advance payments and if your self employment is to cease, then you would expect a lower tax bill next time round.

If you have an accountant, they can apply to have the payments reduced based on estimated income and expenditure to October.

The estimated tax due would then be split in half to give each payment on account that would be payable in Jan 10 and July 10. the January one you have already paid would be deducted from the total and then the remaining balance would be payble in July.

ie if the estimated tax due is £10,000 then each Payment would be £5,000. If you current Payment on accounts were say, £7,000 each, then you would only pay £3000 in July (£10,000 - £7,000 already paid)

Be careful though, because if you reduce the payments on account and you tax bill is higher than expected, you will be charged interest from the date the payment on account was due.

the form you would need to apply to reduce the payments on account is called "SA303"

visit the inland revenue website and search for it, they have a downloadable version in PDf if you fancy doing it yourself.

 

[Jenni384]

I just want to add that payments on account (PoAs) are not strictly speaking in advance.

E.g. people paid their PoAs in the January just gone (2010), on account for the 2009-10 tax year which has just ended. They pay the second half of them in the coming July.

Therefore the first PoA was paid 10 months into the year to which it relates (so you will already have earned the money for it) and the second is payable 4 months after the year end.

Once your self employment ceases, your PoAs will stop, but as Paul says you will have to let them know and apply to reduce them for the year of transition between self employment and PAYE.

It will all come out in the wash on your last tax return, but it's well worth asking your accountant about it.

 

[elaine@cheapaccounting]

Actually the payments on account are not all in advance and are paying tax that if employed you would have paid each months.

Now in your case as you have changed circs part way through the year the situation is different.

My advice would be to get the 2009 / 2010 SA completed asap.

You may be due a tax refund depending on your POAs.