Background
Individuals who are required to submit a self-assessment tax return to HM Revenue & Customs (HMRC) will be familiar with the deadline of 31 January following the end of a tax year as the final due date for submission. Many taxpayers submit their return much earlier than the deadline date and whilst one advantage is that it relieves the stress of rushing before the deadline there are a number of other advantages.
In this week’s Muras Matters we consider some of the benefits of submitting your tax return early.
Detail
Whilst the early filing of a self-assessment tax return avoids the risk of missing the filing deadline and incurring automatic late filing penalties, there are a number of other benefits which should not be overlooked.
Accelerating a tax refund
For those taxpayers who are likely to be due a tax refund for the previous tax year it is clearly beneficial to submit a tax return as soon as is practically possible so that the overpayment of tax is returned to the individual rather than sitting in HMRC’s account.
Earlier refunds can be particularly beneficial for reinvesting or managing personal finances.
Potential to reduce the July payment on account
Individuals who are required to make payments on account can often benefit from preparing their tax return in advance of the 31 July payment deadline. It may well be that a tax liability will be lower than originally expected when the previous year’s tax return was submitted. By preparing a return before the end of July it may be possible to apply to either reduce the payment on account due or, if the final tax liability for the year is lower than expected, submitting the return before 31 July could mean a lower second payment on account which could in turn cover the remainder of the tax liability for the rest of the year. Early submission also avoids overpaying the second payment on account and then having to wait until the tax return is submitted later to obtain the refund.
Better financial planning
Submitting a tax return early provides the opportunity to better plan for any additional liability which may be required by 31 January and avoids any last minute surprises which might not have been budgeted for. The earlier a tax liability is known, the more time is available to plan for and for making better decisions when managing savings, investments or planned expenditure.
Early preparation of a tax return also provides invaluable time to identify potential tax saving opportunities, such as allowable deductions and reliefs, particularly if additional information is needed to be submitted alongside the return. Late submission always increase the risk that such opportunities for tax savings may be missed or there is insufficient to bring all the information together to support any claims.
For those self-employed individuals who will be subject to a change of basis period adjustment from 2023/24 tax year – as detailed in a recent Muras Matters – an additional tax charge may result from the change of basis rules. Again the sooner a tax return is prepared the more time available to consider any additional tax to pay and also to consider the options available for spreading of that additional tax.
Avoid last minute issues and stress
Filing a tax return early can significantly reduce the stress often associated with the submission deadline. It can also reduce the likelihood of errors or omissions when rushing to compile and submit the return information at the last minute. Errors or omissions can lead to penalties and additional scrutiny from HMRC.
Early filing can also provide the time to create a payment arrangement with HMRC if meeting the tax liability may be an issue. This can help avoid late payment penalties and interest charges, which otherwise can quickly accumulate.
It is also important to remember that submitting a tax return early does not mean the balance of tax must be paid earlier. The deadline for any balance of tax owing remains 31 January following the end of the tax year.
If you would like to discuss the opportunity to complete your tax return early or require our assistance regarding your self-assessment return please contact our Tax Director, Jenny Marks.
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