Why you should file your self-assessment tax return early this year

The self-assessment deadline of 31 January 2021 is looming – but it could benefit your finances to submit your tax return early.

According to HMRC, there were around 700,000 taxpayers racing to hit this year’s 31 January deadline having left their tax return submission to the last day – with 26,500 people submitting their return in the final hour between 11pm and midnight.

But after many months of upheaval and, for many, lost earnings, it’s more important than ever to make sure your tax affairs are in order in plenty of time.

This will help guard against having to pay any avoidable fines for being late, but also might help if you’re applying for the third SEISS government payment.

Here, Which? reveals all the reasons why it’s beneficial to submit your 2019-20 tax return well ahead of the deadline.

Filing early may help you secure the third SEISS grant

As part of the government’s self-employed income support scheme (SEISS), some self-employed workers will be eligible to receive a grant covering up to 80% of lost earnings, with a cap of £7,500, for the three months from November 2020 to January 2021.

This is the third grant of this type, but it comes with some additional eligibility criteria, as applicants must have had a new or continuing impact from coronavirus from 1 November to the end of January which you believe will cause a significant reduction in trading profits over this period.

Applications opened on 30 November, and are due to close on 29 January 2021 – two days before the self-assessment tax return deadline.

While the government hasn’t mentioned any interaction between 2019-20 tax returns and the third SEISS grant, some tax experts have suggested it may be worth filing your tax return early to provide evidence of any claims you make regarding the impact coronavirus is having on your trading profits.


You’ll be able to plan for your tax bill

Once you’ve filled out your tax return, you’ll be able to calculate what your tax bill will be.

It’s good to know this figure as early as possible, so you can plan your finances accordingly. You don’t have to pay your tax bill at the same time as filing your tax return, so in theory, you could have filed your tax return several months ago, and will still be obeying the rules if you wait until the end of January to pay the tax bill.

For those who pay tax by payment on account, filing your tax return early this could also mean you’ll get a tax refund sooner if it turns out you’ve already paid more tax than you owe.

What’s more, if the loss of earnings due to coronavirus means you’re going to be unable to pay your tax bill on time, filing your tax return early may help you secure a Time to Pay scheme agreement from HMRC.

The scheme has been broadened this year as part of the government’s COVID-19 measures to help self-employed workers, and to be eligible you must:

  • owe less than £30,000 in tax;
  • be signed up to gov.uk and have a government gateway ID;
  • have filed your 2019-20 tax return and know how much tax is due;
  • not have any other outstanding tax returns, or already owe any money to HMRC.
The Which? Money Podcast

There’s less chance of you making a mistake

While it’s important to make sure both your tax return and tax bill are submitted and paid on time, note that HMRC can also impose fines if it thinks you’ve made careless or purposely misleading mistakes.

Careless mistakes are much easier to make if you’re in a rush – which you likely will be if you leave it until the final deadline day to start thinking about getting all of your paperwork together to file your tax return.

The penalties are based on the amount of tax you owe, and depend on the kind of mistake HMRC deems you to have made:

  • 0% charge: you’ve taken ‘reasonable care’ to fill out your tax return correctly.
  • 0%-30% charge: you’ve been careless and made mistakes.
  • 20%-70% charge: you’ve deliberately underestimated your tax.
  • 30%-100% charge: you’ve deliberately underestimated your tax and tried to conceal it.

You won’t get fined for being late

The great thing about being early is that you definitely won’t be late, which rules out some pretty hefty fines that can be levied on those who miss the deadline – which you’ll face if you’re just a day late:

  • One day late: £100 fine
  • Up to three months late: additional £10 for each day late (capped at 90 days)
  • Up to six months late: an additional £300 or 5% of the total tax due – whichever is bigger
  • Up to 12 months late: an additional £300 or 5% of the total tax due – whichever is bigger.

You may be let off these fines if you have what HMRC deems to be a ‘reasonable excuse’.

This is assessed on a case-by-case basis, but some examples it gives include the recent death of a partner, an unexpected hospital stay or a fire which prevented you from completing a tax return.

What do you need to file early?

It’s possible to file your tax return for the previous tax year as soon as the new tax year starts on 6 April – but many people don’t, perhaps because they’re waiting for certain figures to be confirmed, or perhaps because they simply want to put off the task for as long as possible.

It’s best to get your documents together before you start, so all the figures are to hand when you need them. Depending on your circumstances, you’ll likely need things like:

You can submit your return even if there are a few figures that aren’t confirmed; you can submit estimations and amend them at a later date, as long as you make this clear when you fill out the return.

File your tax return with the Which? Tax calculator

If you’re yet to file your self-assessment tax return, consider using the Which? tax calculator. This online tool is easy-to-use, jargon-free, and helps you tot up your tax bill while suggesting expenses and allowances you might have forgotten.

When you’re done, it can also submit your return directly to HMRC.



source https://www.which.co.uk/news/2020/12/why-you-should-file-your-self-assessment-tax-return-early-this-year/
Post a Comment (0)
Previous Post Next Post