WHAT does POA mean to you? Power of Attorney? Prisoner of Azkaban? The 1973 debut album by Italian prog rockers Biocco Mentale?
If any of those are what spring to mind, we’re sorry to say that this blog is probably not what you were hoping for. Much as we love legal terminology, Harry Potter or unlistenable European rock, we know a lot more about Payments on Account.
Payments on Account are the brainchild of those lovely people at HMRC. They have been around for many moons now but, thanks to the recent change in Dividend Tax rules, are almost certainly only just troubling contractors.
Those dividend tax rules mean that many of you are now paying income tax for the first time since becoming a contractor. That is bad enough (yeah, thanks HMRC), but because many of your income tax bills are higher than £1,000, HMRC’s rules on POAs then kick in.
Basically, how it works is this: On your first time of paying POAs, if your Income Tax bill exceeds £1,000, you pay that tax bill plus half that bill for the following year at the same time. Then, six months later, you pay the other half of the following year.
So if your 2016/17 tax bill is £2,000, you would pay £3,000 on January 31, 2018 then £1,000 on the July 31.
If your following year’s bill is less – for example if it’s £1,500 rather than £2,000 – the amount you’ve overpaid is then refunded and you'd only have to pay £750 in January 2019 and then another £750 in July 2019 towards the next bill. And so on....
There are two pieces of good news. One is that after that first year, when it might feel like HMRC is taking away every last penny you’ve worked for, you may actually be grateful for the payments you’ve made on account.
The second piece of good news is that as a CEJ client, you don’t have to worry about it. If you want the whole thing explaining a bit more, drop us an email (see the bottom of this blog) but rest assured that we have got the whole POA nightmare under control and will be making sure you are avoiding higher rate tax at all times.
As ever, if you have any questions, get in touch: email Jo (email@example.com), Ben (firstname.lastname@example.org) or Peter (email@example.com).