Failure to file your tax return on time, now leads to automatic penalties being issued by HM Revenue & Customs (HMRC) which go far beyond the £100 limit. The Department recently revamped the late filing penalty regime to make it much more severe and gone are the days where penalties could be mitigated if you had little or no tax outstanding.
31st October 2012 is the deadline for the filing of paper tax returns for the year ended 5th April 2012 (2012 tax return), and although the filing deadline shares a spot on the calendar with Halloween, it doesn’t have to be a scary time for small business owners and taxpayers.
There are many advantages of filing your self assessment tax return ahead of the deadline:
- Risk of errors is reduced: If you prepare your tax return at the last minute and have to rush it in order to meet the deadline, you are more likely to make a mistake. Therefore, getting your tax return completed well ahead of the deadline should mean your tax return is more accurate. Even a 'Careless error' can cost you up to 30% of the tax at stake as HMRC are becoming less forgiving.
- Planning: Preparing your records early, will leave time for your accountant to consider if there are any tax planning opportunities available, such as making sure you have utilised all of your tax reliefs and allowances. Remember, the tax office has no obligation to help you save tax.
- Cashflow: Once you have prepared your tax return, your tax liability can be calculated. Your income tax liability for your 2012 tax return is due by 31st January 2013; regardless if you file your return early. So the sooner you prepare your return; the sooner you can start looking at your finances and deciding on what you need to put aside to cover your tax bill
- Avoids penalties and interest: If you are late with your tax return, you will face harsh late filing penalties. And if you are late with your tax payments, you will face interest and possible late payment penalties.
- Peace of mind: More than 80% of taxpayers now choose to file their tax returns online- which as it says above - allows 2012 tax returns to be filed by 31st January 2013. However, as clashes with the Christmas festive period, some taxpayers leave their tax returns until the New Year. But why not get it done ahead of the holidays and rest easy over Christmas?
What if I don’t need a tax return?
HMRC should write to you annually if they think you need to file a tax return. However, if your circumstances have changed and you think you no longer need to file a return, you can contact them and if they agree with you, they can remove you from the self-assessment system.
A word of warning though - try to do this ahead of the filing deadline. Otherwise, the system will automatically start sending you late filing penalties. Although you could get these removed too, it’s preferable to avoid being issued with penalties in the first place.
What if I think I now need to file a tax return?
You may need to complete a tax return if any of the following apply:
- Have become self-employed
- Have become a director
- Receive high levels of savings/investment income
- Your annual income is over £100,000
- You have Capital Gains tax to pay (on say, the sale of a holiday home)
- Receive untaxed income (such as rental or some savings income)
There are also other instances when a tax return may be required, but these are less common.
You need to inform HMRC by 5th October following the end of the tax year in which it happened. The tax year runs from 6th April to the following 5th April.
So, if your self-employment started October 2012, that would fall into the tax year ended 5th April 2013. Therefore, you would need to inform HMRC by 5th October 2013. But it’s best practice to inform HMRC that you may need to complete a tax return as soon as possible, so avoid leaving it until the last minute.
By Jo Nockels | Google+ Profile