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Explaining payments on account again and again

How many hours do you spend per year explaining payments on account to sole traders?

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Little things sum up.
I am from Madrid and traffic is horrendous. Commuting one hour for work is normal for many workers. That is 440 hours or 19 days per year inside your car without sleeping. Extrapolate that to a whole professional career...!

As I keep building my practice based on sole traders, I find I spend a lot of time explaining payments on account. Not only that, once the client has understood what they are, I spend some more time listening, like a good psychologist but without charging for it, how unfair the payments on account are. 

I would like to send them a video from youtube explaining what they are but I reckon I will have to create one on my own as 90% of my clients are Spanish!

Well, this post is not asking anything. Just to vent. Thanks for listening for free. 

Have a nice weekend!

Replies (21)

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By ireallyshouldknowthisbut
20th May 2022 13:50

You get used to it.

Re the "unfair", I explain along the lines of "you pay in January for the year which was 10 months earlier, but HMRC say 'hang on you have another 10 months earnings' so they want some of that, and take you a guess to the end of September, and another guess of what it was to the end of March in July, so its still better than PAYE when they take it from you right away'. Seems to work.

Thanks (4)
A Putey FACA
By Arthur Putey
20th May 2022 14:20

About the same as spent explaining to spousal self assessment clients why they have to pay tax on dividends that they have never seen! Oh, and the consequent payments on account.

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Replying to Arthur Putey:
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By DKB-Sheffield
20th May 2022 14:39

Not just spouses! Their significant other halves don't always get it either!

Client: "But I never received a payment of £24K from the company"
Me: "You did, you chose to leave it in and only take out £2K pcm"
Client: "But you said that was from the Director's Loan that the company owed to me"
Me: "Yes, it owed you for the dividends you had left in... i.e. the £24K"
Client: "So can I draw the £24K out now?"
Me: "[email protected]#$%^&*"

Thanks (4)
Intercity
By Mr Hankey
20th May 2022 14:39

Just wait until MTD for income tax arrives, the number of hours wasted talking to sole traders will really rocket then.

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By DKB-Sheffield
20th May 2022 14:45

They understand the concept of Payments on Account perfectly well when they're asking Minnie Extension for 50% up front before they'll start work!

What they don't understand is that when Minnie has paid her 50%, she has nothing/ nil/ nada to show for it! At least HMRC only want 50% up front for 83% (Jan), or 100% up front for 133% (Jul)!

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Caroline
By accountantccole
20th May 2022 15:16

I used to have a colour coded excel summary that showed the tax years and when the POAs get paid, with example figures covering a couple of years, which seemed to help.

Thanks (3)
Replying to accountantccole:
seneca
By Seneca
20th May 2022 15:49

Thinking of doing something similar when I welcome them onboard, a leaflet where they can see it.

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Glenn Martin
By Glenn Martin
20th May 2022 16:06

I just put the taxcalc calculation up on screen then record a 90 second loom video explaining the elements on the return and payments etc.

gives them a permanent record saves me loads of time and not a query back so an absolute winning solution.

Thanks (3)
Replying to Glennzy:
seneca
By Seneca
20th May 2022 16:50

I had not thought of this option but sounds very good to me thank you. I am learning to simply use OBS mainly to explain Freeagent and Xero videos. I will use it for Tax Returns too. Gracias.

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Replying to Glennzy:
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By Hugo Fair
20th May 2022 16:52

I thought the Tolpuddle Martyrs (your nemesis) broke all the looms?

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Replying to Hugo Fair:
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By spilly
21st May 2022 15:00

Hi Hugo, think you are mixing up your rebels. It was the Luddites who destroyed mechanised looms. The Tolpuddle Martyrs were farmworkers who formed the first recognised trade union.

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Replying to spilly:
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By Hugo Fair
21st May 2022 18:15

You are of course correct ... although, in a post-hoc swerve of self-justification worthy of a politician, I could point out that the Tolpuddle Martyrs:
* were only 20 years after the Luddites, whom they initially took as their role models (the threat from mechanisation was the same driving force in agriculture as it had been in textiles ... so the reciprocal threat to smash those machines was the first threat they made);
* some of those machines were derived from the same mechanism as looms;
* their leader, George Loveless, wrote a short poem in his cell:
"From field, from wave,
From plough, from anvil and, from Loom;
We come, our country’s rights to save,
And speak a tyrant faction’s doom:
We raise the watch-word liberty;
We will, we will, we will be free!"

But I admit these are facts only known to me due to your pertinent observation! :=)

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Replying to Hugo Fair:
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By spilly
22nd May 2022 11:00

Good to see extra homework being done, and reading your response has enhanced my knowledge too.
I’m now wondering if accountants should band together in a similar fashion to oppose the potential tyranny of MTD ITSA. With the inaugural meeting held in Tolpuddle of course.

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Replying to spilly:
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By Hugo Fair
22nd May 2022 11:20

Interesting concept ... there are initially close parallels (increased 'automation' leading to reduced wages), but I see a large dis-connect as well.
The Luddites and the T Martyrs were prepared to acknowledge that the new machines *did* increase productivity, just not to their benefit ... so the issue was a lack of 'fairness' in apportioning those benefits.
Whereas with MTD, I can find few accountants or bookkeepers who believe that the new technology (or rather its application) will lead to increased productivity - quite the reverse in fact.
It's not so much a threat to our livelihoods (although it will threaten some and be uncomfortable for many) ... more a threat to the system of tax collection itself.

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By adam.arca
21st May 2022 12:34

I think we’ve all had this experience, also the clients who moan vociferously “why should I pay tax before I‘ve earned the profit?” Yeah, good one.

My solution (and I’ve been doing it for years) was a 4 year summary of income and tax cost which also shows how last year’s payments account fit into this year’s tax payment. Works for me but hasn’t of course stopped all the moans.

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By jonharris999
21st May 2022 12:55

My pathetically inadequate 'joke' to ease this through is to point out that one day will come the year of retirement in which (theoretically at least) punter can work for their last year and then not pay tax on that afterwards, because they've already paid it. The joke is 'remember not to die first'.

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Replying to jonharris999:
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By DKB-Sheffield
21st May 2022 13:06

Taking that lead, yet on a distinctly tangential path... This is actually the key reason I am not completely against Basis Period reform!

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Replying to DKB-Sheffield:
RLI
By lionofludesch
21st May 2022 23:44

DKB-Sheffield wrote:

Taking that lead, yet on a distinctly tangential path... This is actually the key reason I am not completely against Basis Period reform!

How does basis period reform solve the payment on account problem?

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Replying to lionofludesch:
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By DKB-Sheffield
22nd May 2022 00:45

It doesn't...

But it can help on the post-retirement tax burden point. Particularly if overlap relief is minimal, or non-existent.

e.g. client with April '22 year end, retires in April '22, still paying 12 months tax in Jan '24 (or more accurately, paying POA in Jan/ Jul '23 with balancing charge in Jan '24).

Hence the 'tangent'.

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Replying to DKB-Sheffield:
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By Hemantkumar Patel
26th May 2022 10:59

You can apply reduction in amount of Payment on Account.

Thanks (1)
Replying to Hemantkumar Patel:
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By DKB-Sheffield
26th May 2022 13:58

I agree this is possible but, assuming your refer to my example, I wouldn't recommend.

The TY 2022/23 POAs are based on a 'normal' trading period (Basis Period: 01/05/2021 - 30/04/2022). Reducing POAs could worsen, not lessen, the ultimate liability (interest being applied to POA underpayment).

All things being equal, BP 2021/22 profits being identical to BP 2020/21 and equal to overlap relief, I would advise to reduce TY 2022/23 POA - likely to £Nil as there would be no (or minimal) liability.

Alas, Overlap Relief from either; the later of the first year of trade, or the mid-'90s is invariably lower than profits of the 2020's.

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