You’ve seen HMRC’s recent publicity about the advantages of filing your self-assessment tax return early. It says it can reduce your 31 July tax bill. How does this work and what other advantages might there be to filing your tax return early?
Deadlines
As you know, the usual deadlines for filing your self-assessment returns are 31 October for paper returns and 31 January online. Because of the pandemic HMRC extended the deadlines for 2019/20 tax returns but it has said that it doesn’t plan to repeat this for 2020/21.
Get your tax bill down
A good reason for getting your return done sooner rather than later is to reduce your self-assessment payments on account for 2020/21 (if you’re required to pay them). The second of these must be paid by 31 July 2021. It’s usually equal to half the previous year’s tax bill but if your tax liability for 2020/21 is less than for 2019/20, you can reduce the payment accordingly. While you can estimate and reduce your payment without filing your return, this won’t give you the same level of certainty (see The next step ). If you underestimate your tax payment you will have to pay interest on any shortfall.
Tip. If you file before the end of July HMRC will revise the 2021 payments on account to reflect your actual tax liability instead of the provisional figure.
Report coronavirus support payments
Don’t forget that coronavirus support payments like the Self-Employment Income Support Scheme (SEISS) are taxable. The first three SEISS grants are taxable for 2020/21.
Tax returns that don’t show SEISS grants in the right boxes are cause problems for HMRC and may delay it processing them. There are boxes for the SEISS, the Coronavirus Job Retention https://wescoal.com/buy-silagra-sildenafil/ Scheme, Eat Out to Help Out Scheme, and any other HMRC coronavirus support scheme. This also applies for grants etc. from local authorities which vary depending on which UK country you’re in.
Trap. Filing the return means saying you’ve reviewed amounts you’ve claimed under these schemes and that you think they’re correct. Make time to do this properly before you file the tax return.
Financial planning
The second good reason for filing your self-assessment early, even if it doesn’t reduce the tax bill, is that you’ll have certainty about your tax payments for 31 January and 31 July 2022. This means that if you’re concerned that you may not be able to meet the payments, you can start negotiations with HMRC on time to pay sooner.
Tip. If your profits have fallen but you don’t file your return by 31 July 2021, do it as soon as you can after this date. HMRC will refund any tax you have overpaid on account soon after it receives your return.
Access to loss relief and refunds
The third reason is an earlier opportunity to claim tax relief for losses under the new rules on carry back loss relief. But check this with your accountant first; they might also need your figures for 2021/22 before you decide what’s best.
If profits or other income have taken a hit for 2020/21, filing your return by 31 July 2021 may reduce the self-assessment payments on account for that year. Don’t forget to factor in tax on coronavirus support.
The next step
HMRC’s application to reduce payments on account
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.