Is POA applicable if Self Employed goes Ltd before SA is due?

Is POA applicable if Self Employed goes Ltd...

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Hi All

I am doing the bookkeeping for a small business in the automotive sector.  For 13/14 the business made a loss so as such no tax was due, for 14/15 there is a profit of around £20k so taking into account personal allowance this will still generate a payment on account due for next year.  The owner is looking to move from Sole Trader to Limited status anyway so I am wondering: if the Sole trader business no longer exsists before 31 Jan 2016 then when the tax return is filed a POA would no longer apply and the tax for 15/16 would just be due 31 Jan 2017???  The business owner does not have an accountant, just myself doing the bookkeeping and he files the returns himself so I apologise if this is a stupid question.

Many thanks,

Leila

Replies (12)

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paddle steamer
By DJKL
19th Nov 2015 11:07

See previous discussions.

I am not aware that cessation in itself negates the need for a POA in respect of the year of cessation, as you imply, it may mean lower POA payments might be made(applied for by reduction) but as the earlier thread indicates care needs to be taken.

Given the party does not have an accountant is he wise to consider incorporation given the profit level and the possible increase in compliance costs?

 

https://www.accountingweb.co.uk/anyanswers/question/reducing-payment-acc...

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By Paul D Utherone
19th Nov 2015 12:53

There may be some scope

but the self employed business will still have profits to return and pay tax on up to incorporation so great care should be taken as the liklihood is that he will have a liability and some or all of the PoA's will remain due.

PoA's are on total liability from all sources not by reference to individual sources.

Perhaps he needs to think about appointing an accountant for the future

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By Vaughan Blake1
19th Nov 2015 13:23

PoA are just a simple mechanical function

Each one being half of last year's liability.  They care not whether sources have ceased or new ones have come into existence. They can be postponed wholly or partially if they appear excessive.

Incorporations usually lead to all the tax being paid via the company, so a postponement could be in point.

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Replying to najeeb:
RedFive
By RedFive
19th Nov 2015 13:52

POA's and Dividends

Vaughan Blake1 wrote:

Each one being half of last year's liability.  They care not whether sources have ceased or new ones have come into existence. They can be postponed wholly or partially if they appear excessive.

Incorporations usually lead to all the tax being paid via the company, so a postponement could be in point.

I have made a POA reduction election in the past for a client that incorporated 1st April, and having done the calculations could easily prove no POA's were payable, as no personal tax would be due for the following year. Just be careful to work out as interest/penalties are charged if you elect to reduce POA's and then tax is due......depending on HMRC's mood.

....but with Dividend tax starting in 2016 this will change and many Directors will need to have the joys of POA's explained to them for future years, depending on how they choose to take their remuneration.

By 'joy' I mean the exact opposite.

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RLI
By lionofludesch
19th Nov 2015 14:01

Agree with the above

Agree with all the comments here.  Ceasing trading doesn't mean that no SA tax will be due in the following year.  Your client/employer needs to make a realistic estimate of next year's tax and reduce his payments on account to that level.  He'll not be charged penalties if he's taken reasonable care, though he will be charged interest on any underpayment.

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By Vaughan Blake1
19th Nov 2015 14:14

Not really!

If you postpone a POA for a halfway sensible reason and it transpires that tax is due, there is only tax plus interest.  No penalties, regardless of HMRC's mood.

Maybe look to code out underpayments caused by dividend tax if possible.

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RedFive
By RedFive
19th Nov 2015 15:58

techy
By mood, I meant as to whether they would except your 'halfway sensible reason'.

Obviously.

I therefore refute your 'Not really' comment and raise you a sense of humour.

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By Vaughan Blake1
20th Nov 2015 14:25

Out of interest

Has anyone come across a case of HMRC issuing penalties for incorrectly postponed POAs?

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Replying to Tax Dragon:
RLI
By lionofludesch
20th Nov 2015 14:29

No but ....

Vaughan Blake1 wrote:

Has anyone come across a case of HMRC issuing penalties for incorrectly postponed POAs?

No.  But then, I've generally been cautious.

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Stepurhan
By stepurhan
20th Nov 2015 14:59

Blast from the past

A question I asked 2 years ago came to the conclusion that HMRC have the power to levy penalites, but no-one had seen it in practice.

https://www.accountingweb.co.uk/anyanswers/question/reducing-payments-ac...

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RedFive
By RedFive
20th Nov 2015 15:18

EM4660 - Penalties: Claims to Reduce Payments on Account - Depends on our mood ;-)TMA70/S59A(6)

Payments on account under TMA70/S59A for any tax year are due on 31 January of that tax year and 31 July next following that tax year, subject to de minimis limits and are calculated by reference to the tax liability for the preceding year.

Where a taxpayer’s circumstances change significantly from one year to the next, they can make a claim to reduce or cancel the payments on account.

The revised payments should reflect the taxpayer’s views on what payment on account, if any, are due for the current year.

A penalty can be charged where a taxpayer, fraudulently or negligently EM5125, makes an incorrect statement in connection with such a claim.

Where your enquiries show the claim to be excessive you should consider, in appropriate cases, whether penalties may be due. Appropriate cases are those where

the false claim was particularly blatant, for example, there were no facts at all that could reasonably have led the taxpayer to believe that a reduced payment was due, orthe taxpayer has systematically and regularly made unjustified claims to reduce payments, andthe reduction was large both in absolute terms and in relation to the true liability.

The maximum amount of the penalty is the difference between

the amount that would have been paid but for the incorrect statement, andthe amount of the payments on account actually made.

That penalty is subject to abatement by HMRC and can be amended or cancelled as a result of an appeal to the tribunal.

The intention of the penalty is to prevent gross or persistent abuse. 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. In practice it will be difficult to charge a penalty in these cases because we will not be able to demonstrate the taxpayer acted negligently. DARM officers will therefore not generally review cases for potential penalties under Section 59A(6) merely because the payments on account were less than they might have been.

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By Vaughan Blake1
23rd Nov 2015 09:52

I too am cautious, but

Have still got it spectacularly wrong on the odd occasion.  HMRC have never asked to see the thinking behind the decision to postpone.

So I extend my question, "has anybody had a client (or heard of someone else's client) penalised or even had an application questioned for a postponement?"

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