January 2018 seems months away, but you may have already received a letter from HM Revenue & Customs (HMRC) asking for you to file your tax return.
Contrary to what you may think there are several good reasons why you should start thinking about your 2017/18 tax return sooner rather than later.
You can file your tax return any time after 6th April 2017 and if you believe you are due a refund or your income changes year-to-year, read on and find out why now is the perfect time to file your tax return.
File now, pay later
Even if you file your tax return early with HMRC, you are only obliged to pay any tax liability by the normal due date of January 2018. However, remember to keep track of payments on account.
Speed up tax refunds
Over payments of tax can sometimes arise for employees or directors, when HMRC has made errors with their tax codes. Building subcontractors operating under the Construction Industry Scheme (CIS) are often in a tax refund position.
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 – refunds usually take longer to be issued because HMRC staff and systems can be rushed off their feet.
Improve your cashflow
If you complete a tax return, your tax bill is below £1,000 and you don’t pay much tax at source (e.g. PAYE), you’ll probably only 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.
More time to plan the tax you owe
Filing your tax return and calculating any tax you owe gives you time to start budgeting and managing your cashflow.
If you are late paying your tax bill, HMRC will charge you interest and possibly even late payment penalties.
Collect the right Tax Credits sooner
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 of your income.
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
A benefit of filing early is that if you owe less than £3,000 in tax and you submit your tax return by 30th December 2017, you may be able to choose to have your tax liability collected through your tax code.
This can be a great option for employees or pensioners, as they can have their tax bill paid from their wages or pension throughout the year, easing the pressure on cashflow.
Buy some extra time
If your affairs have changed this year, preparing your tax return now gives you more time to think about the tax planning opportunities available to you.
By not having to rush your tax return at the 11th hour you will also cut the risk of any mistakes being made. It also allows time for bank statements and any other financial documents you may need to file the return to be collated.
We can help
Your local TaxAssist Accountant is available right now to help you complete your tax return early so you know how much tax you need to pay and by when.
If you are due a refund, it makes great sense to receive this as soon as possible. We are working with many self-employed individuals and business owners who have already filed theirs and we can help you too.
By Andy Gibbs, ATT, CTA