Reduce Payments on account before submitting for next tax year?

[Tyrhone]

Hi all, crux of the question, should/can I reduce my Payments on account from 2021-2022 tax year through the online tax system (sole trader), to match my lower tax bill for 2022-2023? I have worked out my taxes but not submitted them yet and so I know my taxes are lower this year.

The details. I returned to the UK in 2021 and setup as a sole trader. For 2021-2022 tax year I had to pay £1600 tax and NI, plus 2x £739 for Payment on Account. I paid the tax and first POA with the second POA due 31 July 2023. My 2022-2023 tax bill comes in at £1000 (so £600 less) and it says no POA will be due this year.

When logging in to the HMRC APP I have the option to reduce my next POA amount, should/can I reduce this now by £400-ish to match my actual 2022/23 tax bill? Or should I submit my taxes and then what happens? Does it get refunded automatically? Do I need to apply for a refund? Or is that money just in the system and used elsewhere?

Hopefully one of you gents or ladies has some info for me. I have tried searching online and found "ish" answers but nothing which answers this directly. I have also tried to find an affordable accountant but most seem hesitant with my somewhat complicated taxes for a pretty small income.

Thanks for any time and knowledge you might share!
Ty

 

[DWS]

Just submit the tax return and then pay the tax you owe minus the first POA, do this before July 31st so that the second POA is unnecessary.

 

[UK Contractor Accountant]

answers but nothing which answers this directly. I have also tried to find an affordable accountant but most seem hesitant with my somewhat complicated taxes for a pretty small income.

Why is it complicated taxes?

 

[Daybooks]

When you submit your tax return for 2022-23 the actual liability will crystallise and thus any balancing payment or refund due based on any payments previously made on account to date will be known. If your first payment on account exceeds the actual liability then you should apply/request the refund.

If you wait until after 31 July to file your return then HMRC will expect the second payment on account as due.

I think if money in the system was just used elsewhere then many would have something to say on that matter! Don’t give them ideas - it

 

[Tyrhone]

Just submit the tax return and then pay the tax you owe minus the first POA, do this before July 31st so that the second POA is unnecessary.

Hi DWS and thanks for the response. "pay the tax you owe minus the first POA", do you mean minus the first POA I already paid for 21/22 taxes? Is this something automated? For 22/23 it is showing no new POA will be required. If I submit will the second POA be reduced automatically?

 

[Tyrhone]

Why is it complicated taxes?

To be fair I think because of my previous non-resident status, and I was going to become non-resident again this year and was trying to work out how to setup my taxes as an expat. That has now changed, so maybe I should try finding an accountant to help. Any recommendations for a (very) small sole trader?

 

[Tyrhone]

When you submit your tax return for 2022-23 the actual liability will crystallise and thus any balancing payment or refund due based on any payments previously made on account to date will be known. If your first payment on account exceeds the actual liability then you should apply/request the refund.

If you wait until after 31 July to file your return then HMRC will expect the second payment on account as due.

I think if money in the system was just used elsewhere then many would have something to say on that matter! Don’t give them ideas - it

Thanks Pi Daybooks for the response. Ok so I'll submit my taxes first in the next couple days, and then how do I know how much if anything can be requested back? Will the second POA payment automatically be recalculated by HMRC or is this something I need to try and work out myself and then make a claim through (hopefully) their app, as opposed to sitting on the phone for an hour/s trying to get through to someone (again)?

 

[DWS]

According to your OP you have already paid a POA of £739 this should be towards the 2022/2023 tax bill, you owe £1000 minus £739 so £261 to pay, there is nothing to reclaim and as long as submitted before 31st July no second POA to pay.

 

[Daybooks]

Thanks Pi Daybooks for the response. Ok so I'll submit my taxes first in the next couple days, and then how do I know how much if anything can be requested back? Will the second POA payment automatically be recalculated by HMRC or is this something I need to try and work out myself and then make a claim through (hopefully) their app, as opposed to sitting on the phone for an hour/s trying to get through to someone (again)?

You will know how much you are due back by simply doing the calculation yourself - amount due for the year as per the tax return less any payments made on account. The HMRC system will update only when the return is submitted and registered by them. This may take several days but then it will do the recalculations. You can request the refund online once it is showing. If you don’t submit the return then HMRC will not know anything is due so calling them would be a waste of everyone’s time.

HMRC’s systems were not written with the user in mind.

 

[Tyrhone]

According to your OP you have already paid a POA of £739 this should be towards the 2022/2023 tax bill, you owe £1000 minus £739 so £261 to pay, there is nothing to reclaim and as long as submitted before 31st July no second POA to pay.

Ah ok thanks, so the currently requested second POA should disappear or be reduced automatically once my now submitted £1000 tax bill is processed, is that correct?

 

[Daybooks]

Ah ok thanks, so the currently requested second POA should disappear or be reduced automatically once my now submitted £1000 tax bill is processed, is that correct?

Yes, what makes you think otherwise?

 

[Tyrhone]

You will know how much you are due back by simply doing the calculation yourself - amount due for the year as per the tax return less any payments made on account. The HMRC system will update only when the return is submitted and registered by them. This may take several days but then it will do the recalculations. You can request the refund online once it is showing. If you don’t submit the return then HMRC will not know anything is due so calling them would be a waste of everyone’s time.

HMRC’s systems were not written with the user in mind.

Great thank you, I submitted my return and will now keep an eye on things. No it really does not seem like the online system is very refined yet, when looking into what to do if I became an expat it gets even more difficult and seems to become a hybrid of online and snail mail! I know they are working on it, slowly, though so hopefully it will improve.

By any chance can you (or anyone else here) recommend a decent accountant for a small sole trader? My outgoings/incomings are relatively simple, aside from most of it being paid by a U.S. company, but it might help to have someone in the know look through what I could be doing better.

Thanks very much for the info, it has helped me push through my 22/23 taxes with a bit more confidence!

 

[Tyrhone]

Yes, what makes you think otherwise?

Just not having had to deal with it before. Before I left the UK about 15 years ago I worked for others, and 21/22 was the first time I have had to do my own taxes as a sole trader, so 22/23 is the first time I have seen my HMRC account with POA in the system. So basically because I just haven't had any experience with it and couldn't find the right wording to Google the answers you gents have given me here. So thanks!

 

[Daybooks]

Just not having had to deal with it before. Before I left the UK about 15 years ago I worked for others, and 21/22 was the first time I have had to do my own taxes as a sole trader, so 22/23 is the first time I have seen my HMRC account with POA in the system. So basically because I just haven't had any experience with it and couldn't find the right wording to Google the answers you gents have given me here. So thanks!

Welcome to the world of HMRC. Their website resembles a merry-go-round which you’ll eventually resign yourself to.

 

[UK Contractor Accountant]

By any chance can you (or anyone else here) recommend a decent accountant for a small sole trader? My outgoings/incomings are relatively simple, aside from most of it being paid by a U.S. company, but it might help to have someone in the know look through what I could be doing better.

We are moving to quarterly submissions to HMRC soon which is part of HMRC's I'll thought-out change to Making Tax Digital for Income Tax.

DM me if interested in a fee quote for services.

 

[TheSkyisGray]

I would go for an accountant with international tax experience and, if the country you are moving to is the US, then both UK and US expertise.

 

[Tyrhone]

Welcome to the world of HMRC. Their website resembles a merry-go-round which you’ll eventually resign yourself to.

I'm a web designer by trade and often have to find ways around badly designed systems, but add math and tax in there and the frustration levels sky rocket!

 

[Tyrhone]

I would go for an accountant with international tax experience and, if the country you are moving to is the US, then both UK and US expertise.

Any suggestions? I tried a few and might need one if I decide to become non-resident for tax purposes again next tax year. The difficult part is I don't actually tend to move anywhere, I just bounce around for a month (or 3) in various countries and have done so for the last several years (except for in 2021 when I came back to the UK, hence having to setup as a sole trader here). I work as a web designer so I don't need to be based anywhere and tend not to be.

 

[TheSkyisGray]

One of my clients wanted to become a tax nomad and I searched and found the following firms. I don’t have any affiliation to them, there are others:
Everfair Tax
Simmons Gainsford

However if your annual tax bill is only £1,000* then, after paying for advice and numerous flights and accommodation etc to avoid being in the UK, the savings would be eroded so the question is why?

* Yes I would onboard an accountant now since £15k profits is not much for a web designer. Are you sure you are calculating your taxable profits correctly, for example drawings are not an expense?

 

[TheSkyisGray]

To add that, if most of your clients are in the US, then there could be US tax implications. If you are no longer resident in a country with a tax treaty with the US then there could be withholding tax at 30% (deductible by your clients in the absence of a W-8BEN).

 

[Tyrhone]

One of my clients wanted to become a tax nomad and I searched and found the following firms. I don’t have any affiliation to them, there are others:
Everfair Tax
Simmons Gainsford

However if your annual tax bill is only £1,000* then, after paying for advice and numerous flights and accommodation etc to avoid being in the UK, the savings would be eroded so the question is why?

* Yes I would onboard an accountant now since £15k profits is not much for a web designer. Are you sure you are calculating your taxable profits correctly, for example drawings are not an expense?

Thanks for the reply. As to the why, I don't do it for the tax benefits, I have been somewhat of a nomad for over a decade now. I purposely don't take on a lot of clients because I live cheaply and don't need to (my average monthly outgoings come in around £400-£1000 depending what I'm doing), so my total income, not just profit, sits around £12k-£18k in a year. I am currently tossing up between continuing this lifestyle for a few/several more years, or trying something a bit more stable back in the UK as a mid-life crises sort of thing . If so, and AI hasn't made me redundant, I would then start to develop a larger client base.

Since being tax liable in the UK again (I was resident in Australia for awhile and paying tax there), I have been paying taxes on my US income to HMRC as my clients don't seem to take tax off first and I am pretty sure someone will want their pound of flesh so I pay it to HMRC "just in case". These are the sort of situations where I think an accountant could help, but wondering if on my lower earnings the fees would make sense.

Thanks for the recommendations, I will send them an email and see what they have to say!

 

[TheSkyisGray]

Sounds a good life and, while I understand that it is not tax driven, when you get an adviser it may be worth discussing staying UK resident and pay £1k a year and get NI credits and treaty benefits rather than suffer the 30% US tax on, say, £20k sales. The fees would make sense to avoid surprises.

 

[Tyrhone]

Sounds a good life and, while I understand that it is not tax driven, when you get an adviser it may be worth discussing staying UK resident and pay £1k a year and get NI credits and treaty benefits rather than suffer the 30% US tax on, say, £20k sales. The fees would make sense to avoid surprises.

It has its pros and cons like living in one spot. I feel lucky to have traveled so much but I am getting older and have been thinking more about the pros of living full time back in the UK, as you mention the tax benefits being one of them. I just keep getting itchy feet though!