Payment on account penalties

Payment on account penalties

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I have a client for whom we reduced POA to nil as we expected dividends to be lower for 2013/14 vs 2012/13 and drop below the higher rate threshold. 

Turns out they have drawn a heap of cash so will be firmly higher rate for 2013/14.

The quantum of this is 2012/13 was £60k each

Reduced POA to nil (ie expecting £40K)

But back to the £60k more or less for 2013/14.

I assume HMRC would not bat an eyelid for a "first offence?". They have been a client for a while and not done this before. 

The penalty in theory is up to 100% of the missing POA but this does seem to be only for "persistent offenders"

http://www.hmrc.gov.uk/manuals/emmanual/em4660.htm

Do we agree the client should be fine and not fined?

Replies (5)

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By johngroganjga
02nd Sep 2014 18:40

What was the reason for them changing their mind about how much they were going to draw in dividends between the date their returns were submitted and 5 April 2014?

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By johngroganjga
02nd Sep 2014 18:49

What I'm getting at was whether the belief at the time the returns were submitted was honestly held and soundly based. Only if it wasn't are penalties even a theoretical possibility.

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By Justin Bryant
02nd Sep 2014 19:03

I agree with John

And it is only exceptionally that penalties are charged (I have never see that in my career), so I reckon your client will be OK.

 

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By Paul D Utherone
03rd Sep 2014 06:57

The final para of the manual you quote seems most relevant

 ... and the first sentence "The intention of the penalty is to prevent gross or persistent abuse."

If, as John says, the view was a reasonable at the time of the original application and that is then corrected when the return is prepared and actual fact are known, then the interest charge should be it. I have to say I have yet to see a penalty, but always keep a trail of correspondence and computation to back up a reduced payment claim.

Dividends might be a slightly more difficult one to argue, against something that comes from an accounting adjustment - large AIA claim or allowable provision for example affecting a year, but as a one off one would hope that it would not come to a penalty, after all "If the taxpayer makes an accurate self assessment, no actual tax loss will result from the claim to reduce payments on account. Payment of tax properly due will simply have been deferred, and interest will be payable on the deferred tax. "

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By ireallyshouldknowthisbut
03rd Sep 2014 09:32

.

Well the reality is they took out a lot of money in Feb which they are calling "dividend" This was after the application to reduce in December (when they pleaded poverty) but before the July payment on account, ie they knew, or should have known, by July that the lower POA was not on.

I could do this as a loan and put the dividend in in April 2014 but they wanted higher income for 2013/14 for a mortgage. 

I think I will let them do it as intended and cover myself with the slim risk in the cover letter.

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