Frequently Asked Business Question:
My accountant has already requested my tax return information for the tax year ending 5th April 2021 and I am in the process of gathering together all my details. I am aware that the deadline for filing my return and paying my tax is 31 January 2022. Why would I want to complete and file my tax return early?
The annual tax return process is the dirty laundry of the business world – you know it needs doing by the end of January each year, but you put it off, again and again, hoping that somehow it’ll do itself. Suddenly Christmas has come to pass and you realise there’s no avoiding it any more.
You’re not the only one procrastinating – In January 2021, although 10.7million people submitted their 2019/20 returns by the 31st January deadline, HMRC estimated that almost 1.8m people missed the deadline, nearly double the rate reported the previous year.
As soon as you have all the information you need (such as a Form P60, P45, P11D and all your income and expenses, you can file your Self-Assessment. Usually, that means you could be ready to file from late May onwards.
With the current uncertainty surrounding Covid 19 and potential further lockdowns in Autumn/Winter, now is a good time to avoid the mad rush at the start of 2022. Some of the key benefits to filing your tax return early are:
The sooner you complete your self-assessment, the sooner you’ll get your tax bill. That means you know exactly how much you need to set aside each month to make sure you can afford it.
The sooner you file your tax return, the sooner any refund you may be due can be processed. There are many reasons why you may be due a tax refund, including excessive payments on account based on the previous year’s income, and for employees and directors where HMRC have made errors with their tax codes. Building subcontractors who have had tax deducted at source through the CIS are often in a tax refund position.
Many businesses are currently trying to forecast their cash needs in the short/medium-term and one of the biggest expenses the self-employed will have before the end of the tax year will be their income tax bill.
Knowing exactly how much your tax bill will be in January 2022 will help you to plan effectively for how you will be able to pay it, be that through bank funding or by preparing to engage with HMRC and asking for a phased payment arrangement when the liability falls due. Remember just because you file your return early does not mean that you must pay the liability immediately. That only becomes due for payment in January 2022.
Another benefit of filing your tax return early is that if you have earnings taxed under PAYE (from other employment), you can choose to pay your self-assessment tax month by month via PAYE. You must have a tax bill of less than £3,000 to be eligible.
For more information and/or assistance, please contact our Tax Team who will be pleased to help you.