The Benefits of Filing your Tax Return Early

Answer:

With the current uncertainty surrounding COVID 19 continuing, now is a good time to avoid the mad rush at the start of 2021 and taking the time now to complete and file your tax return. Some of the key benefits of filing your tax return early are:

With the coronavirus pandemic wreaking havoc on the economy this year, planning is crucial to avoiding or at least alleviating any future financial shocks. None of us are having the 2020 we expected, and millions aren’t enjoying the income we were expecting. Therefore, there is a risk we could suddenly find ourselves hitting the 31 January tax return deadline with a serious cash shortfall. 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 2021 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 2021.

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. The deadline for this is 30 December 2020, but that’s still a month earlier than the 31 January 2021 deadline for filing the return online.

Finally, the threat of getting fined is part of the reason that leaving a tax return to the last minute is so stressful. If you pay one day late, it’s a £100 fine. Then after that, it’s £10 more for each day until you reach the £1,000 cap. Additional fines are piled on top of that if you’re more than six or 12 months late. The only way to guarantee you won’t have to pay these fines is to file on time. You might encounter unexpected complications if you leave it to the last minute, potentially delaying you past the deadline. By filing your self-assessment early, you can be absolutely certain that you won’t end up filing late.

There are many good reasons to file your tax return early and it makes sense to do this sooner than later to avoid stress, errors and help plan for tax payments to avoid the 31 January rush.

The advice in this column is specific to the facts surrounding the questions posed.  Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.