Filing your tax return early
The bright sunny weather that we have become used to has finally given way to the
rainy British summer we all know. With this meteorological change making it more attractive to stay inside, perhaps now is the time to deal with your tax return.
Whilst the “Making Tax Digital” plan proposes more frequent deadlines, the tax return deadline is currently still the same as it has been for years. Tax returns for the year ended 5th April 2018 are due for filing no later than 31st January 2019 (31st October 2018 if filing on paper). This may seem a long time away, so you may feel no urgency. However, with so many other things to occupy our attention, it is easy to let that time slip away. Last time around, 2.6 million taxpayers had still not filed their return two days before the deadline. Get it done now and you will not only have peace of mind, but you might find it helpful in other ways too.
Ideally you should be keeping your records in order as you go along. However, when you are busy actually making sales and doing work, it is easy for this to get left behind. But, if you leave it until the last minute, you may find it a lot harder to get things in order.
Documents do go missing, and the longer you take filing them, the more likely this is. Putting your records together early reduces this risk. It also allows you to identify any items that have gone missing at an early stage. Provided they don’t have to dig into their own archives, many suppliers will be willing to provide copy invoices. Bank statements are also easier to order, or download from online banking, if they are recent. You may also find you have a few payments on your statements where you don’t have an invoice at all. The sooner you get the records in order, the greater the chance you will recall what a payment was for.
Whilst full documentation is not strictly required to claim an expense, the more you do have, the easier it will be to convince HMRC if they do enquire.
No accelerated payment
Filing your return early does not change the date on which the tax is due. Getting your return in early means you know in advance the bill you are expecting to pay. This will give you time to set money aside so you are ready to pay when it does fall due. If your tax bill proves lower than expected, you may even be able to free up saved funds for other purposes.
Claiming a refund
Unlike payments, refunds are brought forward by filing a return early. If you are in a position where you pay a lot of tax up front, such as having full-time employment or subcontracting under CIS, you may well have a refund due. The earlier you get your return in, the sooner that money is in your bank account instead of HMRC’s. Leave it until the last minute and you may find your refund further delayed by the sheer volume of claims HMRC have to deal with at that time.
Reduce HMRC’s time to enquire
HMRC have power to enquire into any return that they wish to. However, this power is not completely unlimited in nature. To open an enquiry into a return, they must deliver notice to the taxpayer no later than twelve months after the return is filed. The earlier you file your return, the earlier this enquiry window closes.
Once this twelve month period has expired, HMRC can only look at a return under discovery. This means that information has come into their possession after the deadline expired that would have caused them to enquire into the return earlier. The barrier for discovery to be used is quite high, so having an early enquiry deadline should provide security.
HMRC have a wide range of powers to apply penalties to taxpayers, and they are not reticent about using them. By far the simplest penalties for them to apply are those for filing tax returns late. Simply missing the deadline, even by as little as a day, automatically generates a £100 penalty. Once it is more than three months late, further daily penalties of £10 per day apply for the next 90 days. After six months a further penalty of £300 (or 5% of tax due if greater) falls due, with another similar penalty after twelve months. It is therefore possible to rack up fines of £1,600 or more from simply not filing a return.
At one time these penalties would have been waived if there was no tax due, but this is no longer the case. It is possible to appeal these penalties, but you need to provide a “reasonable excuse” why you were unable to file on time. HMRC are very strict on what constitutes a reasonable excuse, so these penalties can be very hard to overturn once you have received them.
There are also penalties for paying tax late. These are 5% of the outstanding tax, and apply at one month, six months and twelve months. If you have not planned ahead and set money aside, you could end up paying a lot more than you should.
If you feel uncomfortable doing your own return, it is still advisable to act now. Due to the number of late filers, accountants tend to get quite busy near the deadline. Leave it too late, and you may find that no-one is able to help you in time.
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