Filing your tax return early
We have now reached the start of a new tax year, one unlike any other. Whilst taxpayers have until 31st January 2022 to file their 2020/21 tax return, there may be advantages to filing it earlier.
Getting a refund back
If you are actually due to get a refund from HMRC, then filing your return will get that repaid now.
If you are a building subcontractor employed under CIS, then you will have had tax deducted at source. Since these deductions are at the 20% basic rate, ignoring the effect of the tax-free personal allowance and any business expenses, a refund will usually be due.
But there are other reasons for being due a refund. If you are an employee, an error in your tax code could have resulted in too much tax being taken. If you have been one of those unfortunate enough to be made redundant this year, you may not even have had the full benefit of a correct tax code. Finally, if your taxable income in the previous year was high enough, you may have had to make a payment on account in January. If, as is likely this year, your income has dropped appreciably, then filing your return could cancel the second payment due in July, or even get a partial refund of the January payment.
Plan your cash-flow
If you will owe tax, then the balance will still be due for payment on 31st January 2022, even if you file your return now. If you are due to make a payment on account in July, this will not be increased if your actual tax bill is higher than last year. However, it would be reduced if your tax bill is down.
More importantly, knowing how much you have to pay and when will allow you to set money aside beforehand. When the bill comes due, not having to find the cash to pay it at the last minute will reduce your stress.
Make use of lockdown time
Whilst we are in the last stages of lockdown now, the economy is starting to open up again. Many business people will have a lot of work to do in the coming months getting back up to full capacity. By getting their tax returns done before then, they can focus on that work without having them hanging over their heads.
Last but not least, the earlier you do the return, the more likely you will have all the information to hand. Unless you have been filing your records safely as you go along, there is a risk of paperwork going astray. The longer you leave it, the more likely it is something vital will have gone missing when you get around to it.
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