You might think it unusual that, almost immediately after the Budget and with the previous tax year only just behind us, we’re recommending that you submit your tax return.
However, the facts speak for themselves: filing just short of the deadline is a dangerous game. HMRC is under pressure, you may not have the documents you need, and it doesn’t exactly leave you much time to save for your tax bill. The ongoing pandemic adds another great reason to make sure your taxes are in order well ahead of time, with HMRC ramping up compliance efforts and generally being more vigilant than ever with the self-employed.
Filing now, on the other hand, solves all of the above and steers you clear of any late-filing penalties. But don’t just take our word for it. We’ve asked Mike Parkes from GoSimpleTax to explain the benefits of filing early in full detail below.
Give yourself time
Despite being an annual occurrence, almost a million people missed 2020’s Self Assessment tax return deadline. Over 700,000 submitted on deadline day. Part of the reason for this isn’t because the taxpayer has forgotten, but that they’ve underestimated the time it takes to register.
HMRC’s customer service team is already run off their feet in January, and supplying you with a UTR code and registering you for their online services isn’t a quick job. Neither is sending you an activation code in the post that you need to log on. Yet you’ll still have to pass through each stage of enrolment before you can file.
What’s more, you need to locate all of the information and paperwork necessary if you hope to not only remain compliant, but potentially reduce your tax liability through allowances. Expenses, invoices, receipts and bank statements are hard to track if you’re submitting in January, almost two years after the tax year you’re filing for.
Avoid the rush
HMRC aren’t the only ones exhausted in the lead-up to the Self Assessment deadline. The postal service will be struggling under the weight of Christmas communications and festivities – as will your accountants before they enter their busiest period.
This causes stress for a number of business owners – stress that can easily be reduced by being proactive and filing when last year’s accounts are still relatively fresh in your mind.
Also, the anxiety of leaving your tax bill to the very last second can impact your productivity and drain your resources. Devoting yourself to your taxes in January – a slow time for most individuals anyway – can harm your motivation and finances.
Manage your cash flow
Filing early does have its financial perks. Of course, most will be faced with a tax bill; however, some will be owed a tax rebate. If you’ve overpaid in your previous year, HMRC will notify you and will return what you’re owed within a few weeks.
For the rest of us, an early tax bill isn’t such a bad thing either. Your cash flow will be better informed for the new tax year, and you can allocate resources with more confidence.
Remember, your tax bill isn’t due until the 31st January the following year. Filing early just gives you that visibility over what you owe. Effectively, all you’re doing is giving yourself the heads-up to allow for better budgeting.
Finally, the obvious benefit of filing early is not having to pay a fine. Getting your Self Assessment tax return out of the way keeps you from facing any late-filing penalties, of which there are many.
Firstly, you’ll receive an instant £100 fine if you miss the 31st January deadline. For the next three months, if you haven’t yet filed, you’ll be charged £10 a day for up to 90 days. After that, you’ll face a £300 fine (or 5% of the tax you owe – whichever is greater).
Still not filed within a year? You’ll be issued another £300 fine or, again, 5% of the tax you owe if greater. At this point, HMRC may believe you’re intentionally delaying your filing. If they do, you’ll be penalised by an additional 100% of the owed tax.
GoSimpleTax software is designed to make filing as straightforward as possible and ensure you avoid late-filing fines. Their solution is intuitive and easy to use, allowing for taxpayers at any level of experience to file without the assistance of an accountant. What’s more, their software will identify areas where tax liability can be reduced if you qualify for certain allowances.
Interested? Take their free trial today – no credit card required!