You know the scenario. In the midst of putting up the tree, buying the turkey, shopping, partying and all-round celebrations somehow you have to find time to file that pesky tax return; and before you know it, you’re half-way through January having totally over-spent and stressing that even if you do manage to file the return before 31 January you’re struggling to pay any tax due. It doesn’t have to be this way!
As mad as it may seem, the benefits of getting your tax return in now far outweigh the pain of having to think about it again so soon.
Filing an early tax return doesn’t mean any tax payments are accelerated. The due dates of January and July still apply. However, any tax refunds aren’t delayed. If you have overpaid tax, the money will be back in your account not long after filing your return, rather than sitting with HMRC till next January.
If your tax liability is less than £3,000 and you submit your return before the end of December, you can choose to have any tax due collected through your tax code, hence spreading the payments. Alternatively, you can start saving for the tax bill as you know in good time what you’re going to have to pay.
You’re reporting on relatively recent activity, so you’re more likely to remember relevant information and be able to find the financial documents to back up your return, rather than feeling like an archaeologist, or worse still a historical novelist!
You’ll also have the time to check for any mistakes and the luxury of time to take into account any tax planning opportunities.
If you receive tax credits or other benefits, rather than having to submit a temporary estimate of your income by 31 July, you could be in the position of being able to submit actual figures, thus avoiding any over or under-payments.
No article on filing tax returns can ignore the scary penalty regime for late tax returns. HMRC penalises all late tax returns £100, which is due even if you don’t owe them any tax. With extended daily penalties, you can end up owing HMRC over £1,200. Never has being an ostrich been more expensive!
Of course the most important reason for filing your return early is that your accountant will love you! Not only are you avoiding penalties and interest, your accountant will be able to plan your payments more effectively and also may be able to save you paying more tax than you need to.