Summer may have just arrived, but the chances are you have also received a letter from HM Revenue & Customs requesting you to file your tax return by 31st January 2019.
You may be thinking why on earth should you even consider doing this now when there’s plenty of time to file your 2017/18 tax return. Well think again, as there are many reasons why it’s better to be an early bird than a last-minute Charlie.
Your tax return can be filed any time after 6th April 2018 – and if you believe a refund is due or your income varies year-to-year – carry on reading and discover why now is the perfect time…
File today, pay in January
Even if you file your tax return early, you are only obliged to pay any tax liability by the normal due date of January 2018. If you have payments on account to make in July, these could be reduced if you file your tax return early and it turns out your tax liability is less this year.
Filing your tax return and calculating any tax now gives you time to start budgeting and managing your cashflow, as well as look at the tax planning opportunities available to you.
And by not having to rush your tax return at the last minute, you will also reduce the chances of making any mistakes. It also gives you time to find all those bank statements and any other financial documents you may need to file the return.
Remember, if you pay your tax bill late, HMRC will charge you interest and possibly even late payment penalties.
Tax payments linked to more current income levels
If you complete a tax return and your tax bill is below £1,000 and/ or you pay much of your tax at source (e.g. PAYE), you may only need to make one annual tax payment in January.
However, many sole traders and partners are usually expected to make additional payments in advance (so-called 'payments on account') for next year’s tax bill. There are two payments on account to make – one in January and another in July. They are estimated based on this year’s position and will each be half of the current year’s bill.
If your profits vary and you want to improve your cashflow, it would be advisable to prepare your tax return as quickly as possible – preferably before July. That way if the actual figure turns out to be lower, you can revise your July payment on account.
Speedier tax refunds
Over payments of tax may sometimes happen for employees or directors, should HMRC make any errors with its tax codes. Building subcontractors operating under the Construction Industry Scheme (CIS) can frequently find themselves in a tax refund position, because of the level of tax deducted from them throughout the year.
Any refund due is usually processed shortly after a tax return has been filed, so wouldn’t you rather have that money sat in your bank account earning interest sooner?
If you wait until January – HMRC’s busiest time – tax refunds usually take longer to process as HMRC’s staff and systems will be operating at peak capacity.
Get your Tax Credits earlier
If you receive tax credits or benefits, your claim needs to be renewed annually by 31st July, which involves letting the Tax Credit Office know what your income is.
Although you can submit temporary estimates, it is far more beneficial for you to submit the actual figures as soon as possible to avoid being over or underpaid while the Tax Credit Office waits for your actual figures.
Use your tax code
Another benefit of filing early is that if you owe below £3,000 in tax and you submit your tax return by 30th December 2018, you may be able to choose to have your tax liability collected via your tax code.
This is something employees or pensioners should seriously consider, as they can have their tax bill paid from their wages or pension in instalments over several months, easing the pressure on their cashflow.
How we can help
Your local TaxAssist Accountant 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 refund, it makes great sense to receive this as soon as possible. TaxAssist Accountants works with many self-employed individuals and business owners who have already filed theirs and we can help you too.