Filing a tax return in spring? It could be a great help to future you – and remember you don’t need to pay your bill at the same time, so you can still leave that until 31 January 2022.
As lockdown restrictions gradually lift and the weather starts heating up, your next tax return is probably the last thing on your mind.
But if you’re faced with a rainy day, there are real benefits to filing yours early in the tax year.
If you’re wondering whether you can submit your Self Assessment early, you can actually file one for the previous tax year any time after the new tax year starts.
This means you can file a 2020-21 Self Assessment after 6 April 2021.
Here are five benefits of doing your Self Assessment early.
Payments on account are future payments towards your next tax bill, based on estimates for your previous one.
One payment on account towards your 2020-21 bill was due on 31 January 2021 and your next one is due on 31 July 2021.
But if you complete an early tax return, you know how much your bill actually is.
This helps with planning for your future payments – and if you’ve overpaid tax, you should get your refund sooner.
Read more about payment on account.
While restrictions are lifting, many businesses are still feeling the effects of lockdown – and small business owners recently told us that they expect coronavirus now to cost them £22,461 on average.
Knowing the actual cost of your tax bill this far in advance should help you set aside the money for paying it on 31 January 2022.
Keep in mind that last tax year, HMRC announced that people who needed more time to pay their January 2021 tax because of coronavirus would be able to set up a payment plan without contacting them.
But you could only use the service if you’d already filed your tax return.
While it’s likely that taxpayers will need to contact HMRC to use Time to Pay in the future, having a completed tax return should put you in a better negotiating position if it gets to January and you don’t think that you’ll be able to pay your bill.
Read more about HMRC Time to Pay.
HMRC says that 26,562 people filed their tax return between 11pm and 11:59pm on the January 2020 deadline.
While leaving it late might be unavoidable for some, it does carry the risk of making more errors than necessary.
And mistakes can lead to fines. While HMRC won’t issue penalties for people who’ve taken reasonable care when filling in returns, they charge 0 to 30 per cent of the tax due if people have been careless.
Having your records organised early not only helps you minimise the risk of mistakes. It also helps you claim all the right tax-deductible expenses.
Claiming expenses reduces your total taxable profit, meaning you pay less tax.
Allowable expenses include computer software, travel, and legal and financial costs. Doing your Self Assessment early means you can make sure you’ve included all your expenses.
Read more about allowable business expenses.
You can include the costs of hiring a professional accountant or adviser as a tax-deductible expense.
If you start your tax return early and aren’t sure about the details, in the first instance you should be able to speak to someone at HMRC quicker (their phone lines are notoriously bad during Self Assessment).
But if you need more advice, it gives you more time to find the right professional to help you out.
It’s important to do your research and make sure you find someone with a great reputation, as bad advice can cost you time and money.
Their advice can help you set up a proper record-keeping system, plus their knowledge of tax and expenses could go towards reducing your overall tax liability.
Read more about hiring an accountant.
How early do you complete your tax return? Let us know in the comments below.
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22 June 2020 • 9-minute read
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