Although the end of January is still a few weeks away, did you realize that filing your tax return sooner rather than later has several advantages?
The one advantage of the tax return deadline is that it is always the same – January 31st – which means that with a little bit of planning and the assistance of your accountant, you should be able to avoid penalties by keeping easily accessible and up-to-date records of your income and expenses throughout the year.
The better your record keeping, the simpler it will be to file your tax return properly and on time. In addition, whether you are anticipating a refund or your income fluctuates during the year, our article explains why you should not postpone completing your self-assessment tax return.
Time is money.
If your financial situation has altered this year, getting things in order sooner rather than later will allow you to consider any tax planning alternatives that may be open to you.
It also gives you time to gather bank statements and any other financial papers you may need to prepare the form. Apps like Dext make it much simpler to keep track of all those scraps of paper that accumulate over time.
File now and pay later.
Calculating your tax responsibilities and completing your return now will give you enough time to start planning and controlling your cashflow, as well as arrange for any tax you may owe. Speeding through your tax return at the last minute increases the likelihood of errors, and HMRC has said that it will – and does – apply penalties for inaccuracies. In addition, if you pay your tax bill late, HMRC may charge you interest as well as possible late payment penalties.
However, submitting your tax return early does not obligate you to pay any tax obligation before the standard due date of January 31st.
Get your tax refund faster.
When HMRC makes mistakes with its tax rules, workers or directors may be entitled to tax refunds. It is also fairly uncommon for construction subcontractors to get tax refunds under the Construction Industry Scheme.
As a result, the sooner you complete your tax return, the sooner any refund you may be due will be processed. This means that any money owing to you by HMRC might be earning you a few months’ additional interest in your bank account. So, why wait until January, when refunds are often delayed due to HMRC’s peak season?
Make the deadline.
By postponing the inevitable, you risk missing the tax return deadline and incurring an automatic £100 filing penalty, regardless of the amount of tax owed. If your tax return is more than three months late, £10 daily penalties will begin to accrue until they reach a maximum of £900.
If your return is more than six months late, you will be fined a penalty of the greater of £300 or 5% of your tax owed. If the return is more than 12 months late, the same amount of penalty is levied again. All of these penalties are cumulative, and as a consequence, the fines for a late tax return might exceed £1,600.