In this article and video we look at just some of the benefits of filing your self-assessment tax return for the 2020/21 tax year sooner rather than later.
Receive your tax refund earlier
There are many reasons why you may be due a tax refund, including excessive payments on account based on the previous year's income, and for employees and directors where HM Revenue and Customs (HMRC) have made errors with their tax codes. Building subcontractors who have had tax deducted at source through the Construction Industry Scheme (CIS) are often in a tax refund position.
You may also have experienced disruption to your business due to the COVID-19 pandemic and may find yourself in loss position which could generate a tax refund
Therefore the sooner you file your tax return, the sooner any refund you may be due can be processed.
What better way to boost your cash resources than by claiming a refund from HMRC?
Calculate your tax bill for cash flow planning
Many businesses are currently trying to forecast their cash needs in the short/medium term and one of the biggest expenses the self-employed will have before the end of the tax year will be their income tax bill.
Knowing exactly how much your tax bill will be in January 2022 will help you to plan effectively for how you will be able to pay it, be that through bank funding or by preparing to engage with HMRC and asking for a phased payment arrangement when the liability falls due.
Remember just because you file your return early does not mean that you must pay the liability immediately. That only becomes due for payment in January 2022.
Have more time to focus on your business
If business is quieter for you now, your income tax return is a job that you could get done and out of the way. When business is back to normal then you will have more time to focus on getting your business back on track rather than on your tax returns.
More time to prepare
The more time you give yourself to gather all the information you need to prepare your tax return, the better. This should reduce the risk of errors and mistakes being made, which may not only be costly, but could also mean you end up paying more tax than you need to and having to re-submit your tax return.
Not missing the tax return deadline
If you file your tax return late, you will be issued with an initial, automatic £100 filing penalty. It no longer matters how much tax you had outstanding. If your tax return becomes more than three months late, £10 daily penalties start to accumulate up to a maximum of £900.
A penalty of the higher of £300 or 5% of your tax due is then charged if your return is six months late and again if it becomes over 12 months late. All of these penalties are in addition to one another; rather than in place of. This can mean penalties for late tax returns can top over £1,600.
Despite HMRC’s best endeavours, a large number of taxpayers still choose to leave their return until the last minute. A record 1.8 million taxpayers payers missed the 31st January self-assessment tax return deadline in 2021.
How we can help
We can help you complete your tax return early, so you know how much tax needs to be paid and by when.
If you are due a tax refund, it makes great sense to receive this as soon as possible. We work with many self-employed individuals and business owners and we can help you too.
Date published 26 Mar 2020 | Last updated 21 Jul 2021This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.