Paying tax above he threshold

[Gaz_M]

I've looked around but can' find an answer to the following...

I've always paid myself up to the max allowance before higher rate of tax in the form of salary & divs apart from three or four years ago.
That year I paid myself about £3k over the top but was surprised that when my self assessment came through in September I had to pay hmrc approx £800 in January (which I was expecting) but the same amount again in July 'in advance' for the following tax year.
That means from the £3k I took out I only really had about half in my pocket.

I could do with taking a similar amount out this year but really need the £2300 and not just under £1.5k if I leave enough on one side to fulfill my tax obligations.

Does anybody know if there is a way around this?
Thanks

[TheFaQQer]

If you are likely to have to pay the tax, then you now need to pay it on account. If you aren't likely to need it, then you can have it reduced down.

BUT - if you reduce it, and then have to pay the tax, HMRC will charge you interest on the money that they asked for and you didn't pay early. Likewise, if you overpay and then don't need to have done it, you get a refund with interest added by HMRC.

A couple of years back, I had a mix-up with the accountant (!) and paid myself over the threshold, resulting in needing to pay tax and then having to pay some on account. Because I knew it was a cock-up, I reduced the amount paid on account down to £100 just in case money.

There's not much you can do, apart from to pay yourself even more, and then put aside even more for your future tax bill.

[jamesbrown]

Yes, if you have a liability one year, that's carried over to the next year as a payment on account. It's simply an advance payment towards your liability and doesn't effect the liability itself, only cashflow. As far as I recall, you can ask to HMRC to suspend a payment on account, but only if it isn't going to be due (e.g. a one-off dividend in excess of the higher rate limit), otherwise you'll pay interest on the amount that should have been due on account.

[TheCyclingProgrammer]

You would have owed the tax on your dividend in January, plus 50% of the same amount on account and a further 50% on account in July.

If the extra dividend was a one off, or you expect to take a smaller extra dividend over the higher rate threshold, you can apply to reduce your payments on account to zero, or closer to what to think they will be.

Be aware of the implications of reducing them then owing more tax as you've underpaid.

If you set aside the tax for every dividend you take over the higher rate threshold at the point you actually take it, you should never have to worry about budgeting for your payments on account unless they are higher than they need to be.

You should only get the double whammy of payment in arrears plus payment on account once.