Six good reasons to file your tax return early this year
Aside from avoiding the panic and stress of trying to find all your tax return information to send to your accountant just before the 31 January deadline there are several other good reasons to get your accounts organised earlier in the year.
1. Get a repayment sooner
If you have overpaid tax during the year you will be entitled to a refund from HMRC. If you know you have overpaid, it is advisable to complete your tax return as soon as possible, so that you can claim this refund. Refunds can be held on HMRC’s account as a credit but the interest received is minimal and it is likely that you will receive a better interest rate with your own bank.
2. Give yourself longer to plan your payments
Providing your accountant with your tax documents as soon as possible after the tax year end (5 April), allows them to calculate your tax liability and advise you of any tax payable in January. Balancing payments are due by 31 January following the end of the tax year, therefore the sooner your liability is calculated, the longer you have to save or plan for these payments. Those who leave their tax returns until January have little time to find the funds for their tax bills. Furthermore, late payments mean that penalties and interest payments may become due.
3. Working Tax Credits
For those who are in receipt of tax credit payments, claims need to be renewed annually by 31 July. Part of this process involves informing the Tax Credit office of your income for the previous tax year. By providing your tax return information early, your tax return can be completed in good time to show your income for the previous tax year, which will avoid the need to submit temporary estimates and the possibility of being over or underpaid.
4. Payments on account – reduce the chance of over or under payments
For those who are due to make payments on account towards the following tax year, by completing and submitting your tax return to HMRC before 31 July, your tax adviser will able to assess whether these payments still need to be made. If your income for the year is lower than expected, you may be able to make a claim to reduce these payments on account. This could avoid the potential overpayment of tax, as well as a waiting period for HMRC to issue this amount as a repayment to you.
5. Tax planning opportunities
An early calculation of your tax position gives you longer to take advantage of tax planning opportunities for the following year such as
- Making gift aid or pension contributions to ensure you receive your full personal allowance
- Changing ownership of shares or partnership profits
- Transferring assets to a lower earning spouse
6. Tax code
If you get your information in early, it can also have an effect on the way the tax is collected. You can choose to pay your self-assessment bill through your PAYE tax code as long you meet certain criteria set by HMRC. To take advantage the following must apply:
- You owe less than £3,000 on your tax bill
- You already pay tax through PAYE, for example you’re an employee or you get a company pension
- You submitted your paper tax return by 31 October or your online tax return online by 30 December
Use a digital system to get organised
Do you struggle to keep a note of your self-employment and rental income and expenses each year for your tax return? QuickBooks is an accounting software which connects to your bank and allows you to enter your income and expenses as they are received or incurred. This keeps you organised throughout the year so you do not have the stress of collating the information in January. Your accountant can have access to the information online too which speeds up the sharing of information.
Regardless of your choice in software the main thing is to keep records in an organised manner to ensure all allowable expenses are claimed. Remember for every £1 of expenses you can potentially save £0.29 or £0.42 depending on what rate of income tax and National Insurance you pay.
Make a new ‘financial’ year resolution
In conclusion, the earlier your accountant receives your tax information the earlier you can have an up to date position regarding your tax affairs. It will give you time to plan, reduce or increase your savings for your tax liability and avoid the stress of a frantic search for information in January.