Should you ever consider filing your tax return early?
To some that suggestion might sound horrifying, even bordering on heresy, but most accountants will tell you that filing an early tax return can prove to be beneficial on a number of different levels.
Why are we mentioning this now?
Well, because HMRC are currently in the process of sending out letters to businesses and self-employed workers reminding them that they need to file their 2013 tax return by 31 January, 2014, or 31 October, 2013 if they are submitting a hard copy.
The vast majority of SMEs and self-employed workers understandably put off getting their tax affairs in order until after the Christmas and New Year festivities are over. There’s nothing wrong with that per se, but leaving things to the last minute does tend to create problems. Accountants like Steven Glicher would argue that the sooner you get matters finalised the better. Not only will this take the pressure off at a time when you’re looking to celebrate with friends and family, but it could prove to financially beneficial in the longer term. Here’s why:
Tax payments aren’t accelerated, but tax refunds are.
Even if a business submits its tax return early, it will still only have to pay its tax liabilities on the normal due dates; in other words, 31 January, 2014(balance and first payment on account, if applicable) and 31 July, 2014 (second payment on account, if applicable).
If a business files its tax return before the filing deadline, it should receive any tax refund it is due fairly shortly after submitting the return. HMRC do not wait until 31 January to pay refunds. Therefore if you believe you may be due a refund, then it makes sense to prepare your tax return as early as possible.
Cash flow management.
If you prepare and submit your tax return before the filing deadline it will give you more time to plan and save for any tax liabilities due. It also means that you won’t be rushing to get your tax return completed at the last minute, and will therefore avoid potentially costly last-minute errors and omissions and late payment penalties. The other advantage is that is that if your tax liability is under £3,000 and you submit your tax return by 30 December 2013, you can opt to have your tax liability collected through your tax code. This means it will simply be deducted from say your wages or pension each week/ month.
Dealing with HMRC direct.
Anyone who has had to ring or deal with HMRC will know that they can be difficult to get hold of at the best of times. If you try to contact HMRC just before the tax filing deadline, you could be kept waiting for ages. It’s far better to plan and submitearlier, particularly if you need to speak with HMRC.
Keeping accountancy cost down.
If you plan to use an accountant to prepare your tax return, then it’s worth noting that some accountants will charge a premium if you submit your accounts to them close to the filing deadline. The reason for this is that many firms will have to pay their staff overtime if the tax returns are to be filed on time, so these charges will understandably have to be passed onto the client.
HMRC’s late filing penalty regime is now far more draconian than it once was. The initial £100 late filing penalty used to be reduced if you paid the tax on time or was capped to your tax liability. But the £100 penalty fine is now automatic. Moreover, if your tax return is more than three months late, £10 daily penalties start to accumulate up to a maximum of £900. A penalty of the higher of £300 or 5 per cent of your tax due is then charged if your return is 6 months late and again if it becomes over 12 months late. And all of these penalties are in addition to one another; rather than in place of. This can mean penalties for late tax returns can top over £1,600.
Using an accountant will take away the stress of filing tax returns and leave you to concentrate on running your business. Not only should penalties and interest be avoided, but accountants may be able to save or defer you tax. They can also keep you informed of your tax position and abreast of any changes in the tax regime. If you would like to discuss any issues relating to early tax filing or small business tax advice, then give Steven Glicher accountants a ring on 0161 485 8007.