When it comes to the dreaded 31 January deadline, the majority of people wait until the last minute to file their annual tax returns. Whilst the likelihood is that most people will meet the deadline, there are a number of reasons why it would have been better for them to have completed an early tax return.
Self Assessment Tax Return for Individuals
What you are liable for: once you have submitted your income tax return, you will be asked to make a final payment for the balance of the previous tax year, and then make two payments on account to HMRC to cover the following tax year – on 31 January (i.e. the deadline for submitting your tax return) and then on 31 July. These payments will be calculated according to your previous year’s accounts. Then, once your final tax position is known, the balance between what you owe and what you have already paid will need to be settled, whether you still owe HMRC or are entitled to a refund, on 31 January of the following year.
Given that your tax return has got to be done anyway, if you file your return nice and early, you will know in advance exactly how much you need to pay, giving you enough time to make sure you have the right amount put aside. By waiting until the end of January to file your return, you may be surprised by the amount of tax you are being billed for, yet, crucially, you will have to pay it immediately. A lot of people find themselves unable to pay because they haven’t put aside enough to cover the liability.
If this year’s profits are significantly lower than last year’s and you have done your tax returns early, you will be able to reduce your second payment on account and there will be no balancing payment to be made.
However, if this year’s profits are significantly higher than last year’s, your final payment could be a lot greater, and will also impact on your payments on account for the following year. And both will need to be paid on 31 January, in effect dealing you a double whammy. Unsurprisingly this is a nightmare scenario for some people. So the sooner you know what your liabilities are going to be, the better equipped you will be to work out a way of dealing with them.
Another reason is that if you leave filing your return to the last minute, you’re more likely to rush and therefore you’re more likely to make mistakes. Not only that, in your haste to compile all the information you need, you could miss something out – it would be annoying to have submitted your return only to discover a new batch of receipts you could have claimed for.
There is one very positive reason to get your tax return in early – if you are eligible for a tax refund, the earlier you get your return in, the earlier HMRC will transfer your money!
Corporation Tax CT600 For Companies
When it comes to corporation tax, the same principles apply. Tax is payable nine months to the day after the end of your financial period, so the earlier you file your return, the earlier you know how much you will be liable for and the more time you’ll have to make sure the funds are available on the deadline date.
In overall terms, it’s much better to get your returns in as soon as possible so you not only know what your liability is, you can also plan for payment.
If you would like advice on corporation or personal Tax or any other aspect of tax planning or trust registration, please do contact us – the HB team is here to help with all your tax, cash flow, MTD VAT, and accounting questions and can help you make your money work harder for you and your business. If you would like to talk about how we can help you and your business, please feel free to contact the team on 01992 444466.
The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above
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