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What is best way to correct payments on account

Payments on account reduced by too much - how to adjust

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Client records have come in for the March 2022 year and client apparently was tempted by a good offer so sold electric car at the end of March, but didn't replace until May. Key member of staff left in January and client expected profits to be significantly affected in the final quarter to March 2022 so opted to reduce payments on account by £10K.  In fact figures not too bad and with the unexpected balancing charge on the car it is clear that the payments on account should have been left as they were.

Client happy to pay now & aware of penalty, interest etc.  Would it be best to file the current tax return now - which would need amending later to fine tune figures, or do I phone HMRC to advise situation or does client just pay the balance owing & estimate of interest & penalty & it will all be sorted when the return is finalised in a few weeks?

Replies (15)

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By Wanderer
05th Jul 2022 16:24

If the tax return is to be finalised within the next few weeks, as you say, then just file that.

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By K81
05th Jul 2022 16:27

HMRC have nothing in place to increase payments in account except for filing the tax return - just get client to pay original amounts now

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Replying to K81:
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By Not Anonymous
05th Jul 2022 17:25

K81 wrote:

HMRC have nothing in place to increase payments in account except for filing the tax return - just get client to pay original amounts now

It might not be necessary in this particular case but HMRC can certainly increase them if the original claim to reduce was excessive and a request is made to increase them.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam1001

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By rmillaree
05th Jul 2022 17:06

It does not matter if the payments on account are too low - you may want to flag up to hmrc though for transparency if this is the case - as long as you pay based on the higher payments on account you have calculated then things will be ok.

eg if £1000 was incorrectly reduced to £500 and should be £1000 - simply ensure the higher amount is paid with catchup asap for any underpayment ref jan payment due and you will be in exactly the same position as you would have been with the higher payments on account (presuming payment dates and amounts the same) - in summary its all about the payments made and the date of those payments rather than the payments on account that show up on the system - the only exception being if hmrc are chasing excessive payments on acount.

Under no circumstances should you put in wrong figures simply to make the non issue of wonky payments on account go away.

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By Kevinb69
05th Jul 2022 22:25

As far as I see it this is purely a matter of mitigating interest. Penalties should not be an issue as there are no late payment penalties for payments on account.

If it were my client i would simply be advising them to pay the difference as soon as possible to avoid further interest accruing.

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RLI
By lionofludesch
06th Jul 2022 05:59

In theory, penalties could be charged but I've never come across that happening. Nor have I heard of such a case.

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By TessaW
06th Jul 2022 08:01

The 5% late payment penalty was the main concern. If that is not charged it will be very good news.

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Replying to TessaW:
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By lionofludesch
06th Jul 2022 08:16

TessaW wrote:

The 5% late payment penalty was the main concern. If that is not charged it will be very good news.

The one if you don't pay within 30 days ?

It's not charged on POAs, per se. Only on tax still unpaid 30 days after the filing deadline.

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Replying to TessaW:
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By rmillaree
06th Jul 2022 08:22

"The 5% late payment penalty was the main concern. If that is not charged it will be very good news."

You raise a good point about the 5% - i have never seen a 5% penalty be charged ref payments on account even when they exist- hopefully this is due to the fact that the manual mentions its the due date for "balancing payment" that matters ref 5% and not the due date for the payments on account themselves- so this tallies with my prior expectation that there are never penalties issued before the 30 days after 31st January as that is the due date for balancing payments that matters.

The only thing i would say is that the manual is slightly silent on situations where there is no balancing payment due- in the absence of anything to the contrary i am presming thats irelevant the due date is still 31st Janaury and the fact there is no liability doesnt alter the fact this is the due date and that is the date that "Always" matters for the 5%

Not sure if there may have been recent changed i may have missed that could be perhaps possible. Hopefuly if my assumption is wrong i will be corrected.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-legal-framework...
The first late payment penalty is 5% of any tax unpaid after 30 days
Paragraph 3(2) Schedule 56

Where a balancing payment or payment on account is still unpaid more than 30 days from the due date for that year’s balancing payment, a late payment penalty automatically arises equal to 5% of the tax unpaid at that date.

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Replying to rmillaree:
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By lionofludesch
06th Jul 2022 08:54

rmillaree wrote:
<
The first late payment penalty is 5% of any tax unpaid after 30 days
Paragraph 3(2) Schedule 56

Where a balancing payment or payment on account is still unpaid more than 30 days from the due date for that year’s balancing payment, a late payment penalty automatically arises equal to 5% of the tax unpaid at that date.

Read on.

Where a balancing payment or payment on account is still unpaid more than 30 days from the due date for that year’s balancing payment, a late payment penalty automatically arises equal to 5% of the tax unpaid at that date.

Which is what I said.

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Replying to lionofludesch:
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By rmillaree
06th Jul 2022 09:10

lionofludesch
I wasnt replying to you - your post didnt exist when i starting my post so i was answering the same question as you without the benefit of your post- must admit you did a better job of it than me - getting to the point efficiently :)

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Replying to rmillaree:
RLI
By lionofludesch
06th Jul 2022 10:33

rmillaree wrote:

lionofludesch
I wasnt replying to you - your post didnt exist when i starting my post so i was answering the same question as you without the benefit of your post- must admit you did a better job of it than me - getting to the point efficiently :)

No offence intended.

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By TessaW
06th Jul 2022 13:16

I just thought that the fact that penalties are not charged on payments on account was confirmed when a client paid the July 2021 payment on account in September and only got charged interest. However I think penalties may have been deferred for Covid in 2021 so it is probably not wise to rely on that example.

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Replying to TessaW:
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By lionofludesch
06th Jul 2022 13:46

Two months late?

Nothing to do with Covid.

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Replying to TessaW:
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By Not Anonymous
06th Jul 2022 19:39

TessaW wrote:

I just thought that the fact that penalties are not charged on payments on account was confirmed when a client paid the July 2021 payment on account in September and only got charged interest. However I think penalties may have been deferred for Covid in 2021 so it is probably not wise to rely on that example.

September 2021 is months before the point penalties would apply.

They would no doubt have been charged had it remained unpaid by March 2022 (and was a large enough amount to attract a penalty).

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