The Benefits of Filing Your Tax Return Early
HM Revenue & Customs (HMRC) are in the process of writing to taxpayers to remind them that they need to file their 2013 tax return by 31st January 2014 (or 31st October 2013 if submitting a hardcopy).
But despite HMRC’s best endeavours, taxpayers often put off preparing their tax return until the festive winter period. However, this really doesn’t leave very long to file and pay any tax owed before the January deadline and it’s easy to get distracted by the celebrations and parties.
In this article, we highlight the main advantages of filing tax returns early and persuade taxpayers not to drag their heels when it comes to dealing with their affairs.
Tax payments aren’t accelerated
Even if you file your tax return early with HMRC, you are only obliged to pay any tax liability by the normal due dates:
• 31st January 2014 (balance and the first payment on account- if applicable);
• And 31st July 2014 (second payment on account- if applicable).
...But refunds are 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 get the cash earning interest in your bank account; not HMRC’s!
Cash flow management
Filing your tax return and calculating any tax liability arising, allows you the time to start saving for the 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.
The other benefit of filing early is that if your tax liability is under £3,000 and you submit your tax return by 30th December 2013, you can opt to have your tax liability collected through your tax code. This means it will simply be deducted from say your wages or pension each week/ month.
If your affairs have changed this year and you have say, 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 tax savings.
Furthermore, having plenty of time to prepare your return reduces the risk of errors being made, because you aren’t rushing to get it finished. It also allows time for bank statements to be collected and any other financial documents you may need to file the return.
If you plan to use an accountant to deal with your affairs, you should be aware that some firms may charge you a premium if you deliver your records to them close to the deadline. This is due to the fact that many accounting firms need to pay overtime to their staff in order to complete the return in time.
Contacting HM Revenue & Customs
Trying to get hold of HMRC can be pretty difficult at times due to staff cuts, but it’s even more difficult around the tax return deadline. Avoid leaving your tax affairs until December or later; just in case you need to speak with the department and can’t 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.
HMRC have changed the penalty regime for late tax returns, and they are now significantly more 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.
And if your tax return is 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 6 months late and again if it becomes over 12 months late. And 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.
If you are in receipts of tax credit or benefits, your claim needs to be renewed annually by 31st July, which involves letting the Tax Credit Office know of your income.
Whilst you may submit temporary estimates, it is preferable to submit the actual figures as soon as possible to avoid you being overpaid or underpaid until the Tax Credit Office has received your actual figures.
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 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.