Payments on Account (Something different maybe?)

Discussion in 'Accounts & Finance' started by Bryn B, Apr 18, 2019.

  1. Bryn B

    Bryn B UKBF Newcomer Free Member

    2 0
    I am currently employed full time, but i am also a sole trader with a small supply & installation business (Not VAT registered)

    I set up the business about 5 years ago, mainly as a way of boosting income, and also the company i was working for was looking a little bit dodgy due to financial difficulty, so i was trying to safeguard my future.

    So far each year earnings have given approximately £3000-£4000 profit, however this year i have the opportunity to consult on and carry out a large body of work in July, which will earn the business about £37,500, potentially giving about £20000+ in profit. This will be a one off, and expected earnings will reduce down to normal levels next year.

    First of all, this £20,000+ added onto my normal employed salary of £33,000 will take me well over the Earnings level for upper rate tax, secondly i obviously have the issue of Payments on Account for the business. I know i can reduce payments on account, but does it cause any other complications given the above scenario?

    So far my book keeping has been very very simple, but i feel this is going to give me one huge headache.
     
    Posted: Apr 18, 2019 By: Bryn B Member since: Apr 18, 2019
    #1
  2. Mr D

    Mr D UKBF Legend Free Member

    16,763 1,874
    A huge headache plus £20k in profit to cope with the headache....?
     
    Posted: Apr 18, 2019 By: Mr D Member since: Feb 12, 2017
    #2
  3. SteLacca

    SteLacca UKBF Ace Free Member

    1,479 288
    It won't cause any particular issues. Ensure that you reduce the POAs on your SATR rather than as a standalone reduction. That way, it all gets done at one go and, if you are a late filer, stops HMRC thinking you have a late payment whilst things get sorted out.

    If S/E income is going to drop back down to below the Class 2 NI threshold, you may want to let HMRC know (though this is less important these days since Class 2 is assessed with your Tax Return). However, if you have never registered as self-employed for Class 2 NIC purposes you may wish to do so, otherwise you will have the devil's own job getting HMRC to correct errors after the fact.
     
    Posted: Apr 18, 2019 By: SteLacca Member since: Jun 16, 2016
    #3
  4. Bryn B

    Bryn B UKBF Newcomer Free Member

    2 0
    Strange isn't it that such a large amount of money can cause a headache, however all i have done is worry about it since i was given the opportunity to earn it. Not actually about the money, more about the one off hit of moneys impact on my earnings next year, and tax obligation etc.
     
    Posted: Apr 18, 2019 By: Bryn B Member since: Apr 18, 2019
    #4
  5. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    12,763 2,365
    No, it shouldn't cause any issues. I'd also add a note on the tax return explaining the reason for the sudden increase/decrease in profits.

    You mention higher rate rate, bear in mind the personal allowance is £12,500 and the basic rate tax band is £37,500 so you wont have a huge higher rate tax charge.
     
    Posted: Apr 18, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
    #5
  6. Mr D

    Mr D UKBF Legend Free Member

    16,763 1,874
    Don't worry about it. Should be just one year tax hit, payable by the extra.
     
    Posted: Apr 18, 2019 By: Mr D Member since: Feb 12, 2017
    #6