HM Revenue & Customs (HMRC) have written to taxpayers to remind them that they need to file their self assessment tax return on time.
But despite HMRC’s best endeavours, taxpayers often put off preparing their tax return until after the Christmas period. However, this really doesn’t leave very long to get this completed before the January deadline and it’s easy to get distracted by the celebrations and parties.
In this article, we highlight the eight main advantages of filing tax returns early in order to avoid penalties, cashflow issues and the opportunity to gain any possible tax refunds sooner.
1. Tax payments are not accelerated
If you file your tax return early with HMRC, you are only obliged to pay any tax liability by the normal due dates - 31st July (second payments on account) or 31st January (balance and the first payment on account).
2. Tax refunds accelerated
If you file your tax return before the filing deadline, you should receive any tax refund you are due fairly soon after you've submitted it; HMRC do not wait until 31st January to pay you. Therefore, if you suspect you have overpaid tax and are due a refund, you should really prepare your tax return as soon as possible so that you can gain the income sooner and begin earning interest on it otherwise HMRC will be earning this interest instead!
3. Cash flow management
Filing your tax return and calculating any tax liability arising, allows you the time to start saving for the tax bill and to manage your cash flow. If you pay your tax bill late, HMRC will charge you interest and possibly even late payment penalties.
4. Tax planning
If your affairs have changed this year and you have losses or a significant amount of additional income, then preparing your return early can pay dividends because it gives you the time to consider any tax planning opportunities which could lead to you saving tax.
5. Reduction in mistakes
Having plenty of time to prepare your return reduces the risk of errors being made, because you aren’t rushing to get it finished and stressed about completing this before the tax return deadline arrives.
6. Subsequent amendments
If you make a mistake on your tax return you've normally got 12 months from 31 January after the end of the tax year to correct it. For example, for the 2012-13 return you have until 31 January 2015 to make an amendment.
So the earlier you submit your return, the longer the window of opportunity is to make any amendments to it.
7. HM Revenue & Customs
Trying to get hold of HMRC can be difficult, but it’s even more difficult around the tax return deadline. So you should really avoid leaving your tax affairs until January; just in case you need to speak with the department and cannot get through.
If you are due a tax refund, you’re also likely to experience a longer turnaround time if you file your return during their peak times.
Did you know that HMRC have changed the penalty regime for late tax returns? They are now significantly higher than they used to be. For example, the initial £100 penalty used to be reduced if you paid the tax on time or was capped to your tax liability. But the £100 penalty is now automatic.
If your tax return is more than three months late, £10 daily penalties start to accumulate up to a maximum of £900 and there are even harsher penalties if your return is more than six months late so they could well top £1,000 in all.
Using an accountant will take away the stress of filing tax returns and leave you to concentrate on running your business. Not only should penalties and interest be avoided, but accountants may even be able to save or defer you tax. They can also keep you informed of your tax position and abreast of any changes in the tax regime.
By Jo Nockels