The horror of Tax Returns!
So come on, hands up, who leaves their tax return to the very last minute, only to find you don’t understand half of it, or you can’t find most of your paperwork and actually, the whole thing looks far more complicated than you ever imagined?
A familiar story for all too many of you I suspect, after all, submitting a tax return is renowned for being a hellish chore, to be put off as long as possible… or is it?
If you need to complete a tax return you must submit it by 31st January following the end of the tax year. For tax year 2016/17 which ended 5th April 2017, you will need to submit your return by 31st January 2018. If you are not sure whether you need to complete a tax return, click here.
We have compiled a number of reasons why it pays to submit your tax return early;
Due a refund? Get it now!
If you owe HMRC tax, your deadline for payment will be 31st January and possibly 31st July (if you come into the payments on account system). But, if HMRC owe you tax they will pay you shortly after they receive and process your tax return.
So, if you think you have overpaid tax and are due a refund, why not give your cash-flow a boost and submit your tax return early.
Plan to save – If you’re expecting a tax bill instead of a refund, it’s only natural you should want to put off paying it and thereby delay in submitting your return for as long as possible, but by finding out exactly what you owe in advance, will give you plenty of time to plan and save the required amount and there will be no nasty shocks.
REMEMBER: Submitting your tax return early doesn’t mean you have to pay your tax early.
You are only required to pay any tax liability by the normal due dates – 31st January and 31st July (for those who are on the payments on account system).
Reducing your payment on account – As a sole trader, if your tax bill exceeds £1,000, you will automatically enter the payments on account system. If it’s less than you have paid on account, then by submitting your tax return before the 31st July, you may be able to reduce your payment on account for July.
If your tax bill works out at being more than you have paid on account, then at least you can start budgeting for your final tax liability.
An exception to the payment on account rule, is if you’ve already paid 80% or more of the total tax amount you owe.
Maximise your spending – Maybe you made a significant capital purchase in the last year, maybe you’ve made a loss, or maybe you’ve bought a buy-to-let property…
Any such changes will affect your tax position and a review of your affairs early on will allow you or your accountant time to consider any tax planning opportunities that could save you money.
Mistakes can happen – If you make an error on your tax return, you would usually have 12 months from 31st January after the end of the tax year to correct it. So it stands to reason, the earlier you submit your return, the longer the window of opportunity is to make any amendments to it.
Claim what you’re entitled to – The trouble with leaving such a long gap between the end of the tax year and submission of your tax return is that you risk potentially missing out on the possibility of including all the expenses you may be entitled to deduct from your profits.
If you haven’t kept up to date accounting records, trying to locate paperwork or even recall what expenditure you incurred months ago could be problematic. Forget to include all your allowable expenses and you’ll end up paying more tax.
Getting your affairs in order early allows you the time to check those allowances, find out exactly what you can claim and whether all your expenditure is tax deductible.
Accuracy is the key – If you receive tax credits, you will need to renew your claim by the 31st July. Although you’re allowed to submit an estimate to the tax credit office, it’s always preferable to submit ‘actual’ figures to avoid the possibility of being over or under paid.
Don’t pay over the odds – Most accountants charge a premium for their services if you deliver your records to them in the latter part of the tax year. So if you want the best out of your accountant and lower fees, aim to get your records together early on in the tax year.
If you’re new to self-employment you may be unsure as to whether you need an accountant, but by starting the process early you’ll have a better chance of working out how to get the support you require.
Fines are not fine! – You never know what life might throw at you when it comes to tax deadline crunch time. If you end up filing your return late, even if it’s only a day you’ll be charged £100. File your return 3 months late and you’ll pay £1,000.
Even if you can’t afford the tax bill, you should still file your return. The fines for late payment are a lot lower than the fines for late filing!
Put it through your tax code – If you’re running your own small business alongside employment and you submit your tax return by 30th December and your tax liability is under £3,000, you could opt to have your tax liability collected through your tax code. This means that your tax will be deducted from your weekly or monthly salary.
Christmas is stressful enough! – December with the impending festive period can be a stressful enough time as it is, without the thought of your tax return hanging over you…
Banishing the procrastination and cracking on with the job in hand will give you peace of mind and space to immerse yourself in what you love doing best, alternatively Christmas Shopping, Cooking and time with the family!
So where do you start? – Well here at Mad About Bookkeeping the clue is in our name, so why not let us take the stress out of your dreaded tax return? We have a number of handy forms on our website to assist you with keeping your own records if you wish and they can be accessed by clicking here; alternatively you can leave all the paperwork to us and we’ll take care of it for you, no stress, no drama, just give us a call!