7 reasons to file your Self Assessment tax return early

Although the deadline to submit your tax return to HMRC is 31 January, there are many reasons why it’s a good idea to get organised earlier in the year.

1. Avoid the last minute panic

Leaving the submission to the last minute can cause unnecessary stress of trying to find and send all your tax return information to your accountant. According to HMRC, in 2020 the peak hour for filing returns was between 4-5pm on deadline day, with 26,562 completing their return at the 11th hour up to midnight on 31 January. HMRC helplines get extremely busy leading up to the deadline so if you have any issues or queries you may encounter frustration and delays if you leave it too late.

2. Take advantage of tax planning opportunities

An early calculation of your tax position gives you longer to take advantage of tax planning opportunities for the following year. This could include:

  • Making gift aid or pension contributions to receive your full personal allowance
  • Changing ownership of shares or partnership profits
  • Transferring assets to a lower-earning spouse

3. Receive a repayment sooner

You are entitled to a refund from HMRC if you have overpaid tax during the year. If you know you have overpaid, it is advisable to complete your tax return as soon as possible, so that you can claim this refund. Refunds can be held on HMRC’s account as a credit but the interest received is minimal and it is likely that you will receive a better interest rate elsewhere.

4. Plan your payments

By providing your accountant with your tax documents as soon as possible after the tax year-end (5 April), it allows them to calculate your tax liability in advance. Tax payments are due by 31 January following the end of the tax year, therefore the sooner your liability is calculated, the longer you have to save. Those who leave their tax returns until January have little time to find the funds for their tax bills. In addition, late payments may mean that penalties and interest payments become due.

5. Tax code

If you get your information in early, it can have an effect on the way the tax is collected. You can choose to pay your self-assessment bill through your PAYE tax code as long you meet certain criteria set by HMRC. To take advantage of this, the following must apply:

  • You owe less than £3,000 in tax
  • You already pay tax through PAYE
  • You submitted your paper tax return by 31 October or your online tax return by 30 December

6. Review your payments on account

If you submit your tax return to HMRC before 31 July, your tax adviser will be able to assess whether payments on account for the following year still need to be made. If your income for the year is lower than expected, you may be able to make a claim to reduce these payments. This could avoid the potential overpayment of tax, or waiting for HMRC to issue this as a repayment to you.

7. Claim working tax credits

If you are in receipt of tax credit payments, claims need to be renewed annually by 31 July. This involves informing the Tax Credit office of your income for the previous tax year. By providing your tax return information early, it will avoid the need to submit temporary estimates and the possibility of being over or underpaid.

Making Tax Digital

Making Tax Digital (MTD) is a digital system being introduced by HMRC to reform UK tax compliance and will eventually affect all taxpayers. MTD for VAT registered businesses came into force on 1 April 2019 and MTD for Income Tax Self-Assessment (ITSA) is due to come into place from April 2024.

Under MTD, four quarterly returns will need to be prepared along with an end of year statement showing any tax adjustments. Taxpayers will be required to maintain digital records and provide information using third party software which is MTD compliant. If you are not already using software for record-keeping, our digital solutions team can recommend and provide the software, as well as offer training on how to use it. If you take steps to become familiar with the software package you are using now, it will make the transition easier for you when MTD applies.

Make a ‘new financial year’ resolution

The earlier we receive your tax information, the earlier you can have an up to date position regarding your tax affairs. It will give you time to plan, reduce or increase your savings for your tax liability and avoid the stress of a frantic search for information in January.

If you would like any further advice, please get in touch with a member of our tax team on 01903 234094.