Yep, the HMRC computer may be pre-set to issue surcharges and penalties and it would require a carefully worded case to overcome with an appeal. Given that personal allowances are rising, it would natural to assume the tax to be less, so that could be further grounds.
Interest will run from each POA date and 5% surcharge on the balancing payment.
Incorrect ****So in Mark's example the accounts**** Not in Marks example but a 31st January accounting year couldn't have been prepared before 31st January and the surcharge kicks in a month and a day after that.
regards, Tim
Edited basis rules
-- Edited by Don Tax on Friday 1st of June 2012 07:48:08 PM
What happens if a client requests to reduce their payments on acocunt as they believe that their profits will be signnificantly lower next year, but when they complete the accounts the profits have been the same.
Would they have to pay a fine or interest on the wrong assumption?
My view is that neither clients nor HMRC have a crystal ball.
The whole idea of payments on account seems to be paying tax before you owe it so how can you be chastised for paying less than you didn't owe at the time in the first place?... Then again I've been charged interest before for having less of a positive balance than the account permitted (I had slightly less than the required £500 and had to pay interest on a positive balance!!! I told that bank in no uncertain terms exactly where to put their high interest account!).
Your clients are in a recession and it was only natural to assume reduced profits but thankfully things have not proven as bad as they anticipated.
All in all I really don't see that there will be a problem as the request was the result of a genuine belief that profits would be lower.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Dont know how the client cant have a fair stab at how business is doing compared to last year.
If they are preparing accounts to say 5 April 2013 (the last possible date they can prepare to in tax year 2012/13) then the first payment on account is due by 31 January 2013 (nearly 10 months into the year that they are paying towards). The second payment on account is due by 31 July 2013 (nearly 4 months after the period has ended. )
So although they cant state if the payment on account with 100% accuracy can be reduced in the first payment on account in January they shouuld be able to when they are due to make their 2nd payment on account (provided they keep up to date accounts) which their accountant can finalise before 31 July.
I will go back to client and make sure that they have a good reason to think that their profits will drop and then inform HMRC. I'll also let the client know that they may have to pay some interest if their profits end up being higher than estimated.
