This may strike a chord with you if you’re you self-employed.
Have you received a letter from HM Revenue & Customs (HMRC) in the last couple of months reminding you that you need to complete and return your self-assessment tax return before the deadline? If you have then you are certainly not alone. Thousands of self-employed people have received these. What is perplexing is that although most of them know about the deadlines and understand that they may face penalties if they fail to return the information on time, they still leave it all to the very last minute.
In fact the majority don’t even start to think about it until the Christmas period, and that could potentially be costly.
It’s much better to start your tax planning sooner rather than later, so that you’ll be able to enjoy the holiday festivities without worry. If you can prepare your business accounts in plenty of time, you’ll avoid the penalties and cash-flow issues and may even be able to apply for a potential tax refund sooner. Here are a few of the advantages of why it pays to be prepared.
Tax payments are not accelerated.
If you file your tax return early with HMRC, you are only obliged to pay any tax liability by the normal due dates – 31st July (second payments on account) or 31st January (balance and the first payment on account).
Tax refunds, however, are accelerated.
If you file your tax return before the filing deadline, you should receive any tax refund due relatively soon after submission; HMRC does not have to wait until 31stJanuaryor later to pay you. Therefore, if you feel that you may have overpaid tax and could be due a refund, the sooner you prepare your tax return the better. It’s better to receive a refund early and deposit the interest than it is to leave matters and let HMRC earn the interest
Cash flow management.
Filing your tax return in plenty of time and calculating any tax liability will give you ample time to start saving for the tax bill and to manage your cash flow. If you pay your tax bill late, HMRC will charge you interest and possibly even late payment penalties
The other benefit of filing early is that if your tax liability is under £3,000 and you submit your tax return by 30th December 2012, you can opt to have your tax liability collected through your tax code. This means it will simply be deducted from your wages or pension each week or month for example.
Tax planning and error reduction.
If your affairs have changed this year and you have losses or a significant amount of additional income, then preparing your return early can be beneficial as it gives you the time to consider any tax planning opportunities which could help you save tax. . The added advantage is that if you don’t have to rush to prepare the accounts, you’re far less likely to make costly mistakes.
If you make a mistake on your tax return you normally have 12 months from 31 January after the end of the tax year to correct this. So the earlier you submit your return, the longer the period you have to make amendments.
HM Revenue & Customs.
Trying to get hold of HMRC can be pretty difficult at any time, but it’s practically impossible around the tax return deadline. So you should really avoid leaving your tax affairs until December or later. If you’re due for a tax refund, you’re also likely to experience a longer turnaround time if you file your return during their peak times.
HMRC have changed the penalties for late, and they are now significantly more costly than they used to be. For example, the initial £100 penalty used to be reduced if you paid the tax on time or was capped to your tax liability. But the £100 penalty is now automatic. If your tax return is more than three months late, £10 daily penalties start to accumulate up to a maximum of £900 and there are even harsher penalties if your return is more than six months late- so they could easily end up costing over £1,000 in total.
Employing an accountant.
If you find that you always face the same type of tax problems around this time of year, maybe it’s about time you talked to a qualified accountant like Steven Glicher. If you use our services it will remove the stress of filling in tax returns and leave you to do what you do best – run your business. Steven Glicher will help you to avoid penalties and interest charges, and we may even be able to save you tax or defer any tax liability. We will also keep you informed of your tax position at all times, and make you aware of any changes in the tax regime that could affect your business.