Why Filing Early Is The Key To Financial Success
It’s a common assumption that, by filing your Self Assessment tax return before the deadline, you will also need to pay your tax bill early too. This isn’t the case. The date for paying any tax…
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It’s a common assumption that, by filing your Self Assessment tax return before the deadline, you will also need to pay your tax bill early too. This isn’t the case.
The date for paying any tax you owe (your balancing payment and first payment on account) remains the 31st January. By filing early, you’re merely giving yourself an overview of your tax bill before this time.
You might be wondering why this is useful, especially if you seldom have the time to get your tax return in order. Well, there are a number of reasons – and in this blog, we’re going to cover each and every one.
RECEIPTS AND INVOICES ARE READILY AVAILABLE
For those of you who have filed a Self Assessment tax return before, you’ll be familiar with the receipt hunt that often occurs just weeks before your submission. Invoices and bank statements similarly need to be dug out and accounted for before you submit. So it stands to reason that the earlier you start the filing process, the easier it is to find these documents.
You’re able to file the previous tax year’s Self Assessment tax return the moment the new tax year starts (6th April). At this point in time, all the information concerning your income and expenditure for the tax year just gone is more readily available. Either you or your accountant will have them to hand and your submission time will be effectively halved.
Failure to retain relevant documents can result in a penalty by HMRC if you’re put under investigation. The same can be said if you have claimed for expenses you can no longer evidence. It’s in your best interests to keep this information secure and use it to submit an accurate tax return as soon as you are able.
IT HELPS YOU BUDGET MORE EFFECTIVELY
But it’s about more than just tying together your previous year’s tax records. Knowing how much Income Tax you’ll owe will impact your budgeting for the upcoming year.
If you wanted to invest in new equipment, take on an apprentice or even rent an office space in the next tax year, knowing your tax bill beforehand can help you figure out how to save up enough resources to do so.
Having this awareness is especially useful if you’re uncertain how your business will be impacted by external factors. Whether that’s a pandemic or new competitor, you have an added level of stability just by knowing what you owe.
Additionally, it helps you avoid any penalties if you pay your tax bill late because you’re surprised by it. There’s simply no need to be blindsided by a tax bill, especially when it’s within your control to get visibility over it.
YOU CAN OPTIMISE PAYMENTS IF NECESSARY
Likewise, knowing how much you owe means recognising when you can’t afford to pay your bill. It’s a tough position to be in, but better to see it coming than risk finding out too late and being penalised by HMRC for not paying your tax on time. Better still, it gives you time to access the relevant support.
In 2020 alone we saw the introduction of two initiatives designed to help sole traders. The first one was the opportunity to defer your second payment on account that would have been made by 31st July 2020 to the 31st January 2021. The second was that all sole traders could spread the payments due in January 2021 over 12 months, interest-free.
In 2021, a fourth Self-Employment Income Support Scheme grant was announced. If you wish to claim this grant and are eligible to do so, you must make your claim on or before 1st June 2021. There will be a fifth grant, but guidance on that will be provided in due course.
REMOVE THE STRESS OF THE 31ST JANUARY DEADLINE
While we’ve touched upon this already, it’s worth reiterating what this means for anyone that has to file a tax return. Filing at the very start of a new tax year means you know your tax bill in advance and can also avoid the stress of the 31st January deadline.
Missing your Self Assessment tax return deadline means you will be issued with an initial £100 penalty. If your tax return becomes more than three months late, £10 daily penalties will be issued. After six months, you’ll receive a £300 fine or 5% of the total tax due (whichever is greater). The same happens again after 12 months.
Filing early, therefore, halves the work needed before 31st January, leaving you with just one job ahead of the 31st January deadline. And that’s paying your bill.
IT HIGHLIGHTS OPPORTUNITIES TO CLAIM EXPENSES
Finally, and perhaps one of the most rewarding reasons for beginning to file early, is that you have more time to reflect back on your expenditure and seek tax relief. Being a sole trader means you’re able to claim expenses, provided they were made for business purposes.
If you start the Self Assessment tax return process early, not only might you be able to remember more expenditure that qualifies, but you also have more time to check back through your records and find the evidence. You have ample opportunity to research any tax relief that may be unique to your sector too.
You can then subtract these costs from your total income to find your taxable profit. This means you could potentially reduce your tax liability. Of course, you’ll need to keep a hold of all the receipts, invoices and bank statements that relate to said expenditure, so that you can present them as evidence to HMRC if they ask for it.
USE GOSIMPLETAX TO FILE EARLY
Filing early doesn’t just give you oversight, but supports you in lowering your liability and streamlining your responsibilities too. Our platform allows this, by breaking down your tax calculation and alerting you to any potential tax savings.
What’s more, with our paid software subscription, you can take photos of your invoices and receipts and log them from your phone using our app. However, you don’t have to pay a thing to start completing your Self Assessment tax return. Sign up for a freemium account today and see how we make the whole process simple.
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