What are the benefits of completing a tax return early?
First of all, filing a tax return late, i.e. after the 31st of January incurs a penalty. If you also pay the tax late, then there will be interest and potentially penalties to pay as well. So I suppose the stick is, completing your tax return early means you avoid interest and penalties. But there are other reasons why you should do your tax return, ideally, much earlier than the 31st of January each year. The main one is that it gives you plenty of warning about what your tax liability is, you don’t really want to be finding out a week before the 31st of January that you’ve got a sizable tax liability. And likewise, you also don’t want to be finding out in January that you’re due a big refund, if you are due a refund, because perhaps your profits have dropped, or your payments on account the previous year were too high, the sooner you get the tax return submitted, the sooner you’ll receive the refund. And, with many businesses struggling currently, that tax refund could give them a real boost and it could see a business through to the end of lockdown or potentially the business reopening in the Spring or the Summer. There are lots of benefits to getting your tax return done early.
On top of the excellent points that Andy has made, this year more than any year is probably the biggest challenge for a lot of people, because a lot of the grants that are being received are taxable, and they all fall within the tax year so people need to understand what their liability is based on the grants they receive. It’s really key that they understand what that liability is and when it’s due. There have been a lot of grants thrown out, but what seems to have slipped peoples minds is that these are taxable, so they really need to be accounted for. And the second thing I’ll point out is, with the personal tax system there is always the payments on account element as well. So that is also a key to understand what your liability is. You can assess whether you can make changes to previous amounts that have been deferred, or ones that HMRC are thinking are due so the payment on account system is probably the one thing when you’re a new self-assessment taxpayer, that seems to really complicate matters. Again, it just needs to be scheduled early, before it’s too late, before you have to speak to HMRC if you need to.
With the second payment on account being due the 31st of July, that is a really good target for anybody who is looking to get their tax returns in early. Because if you submit them before the 31st of July, and actually you’re in a position to reduce your payment on account because profits have fallen, whether that be due to COVID-19 or some other reason, then you can reduce your second payment on account to exactly the right amount rather than estimating it. If you estimate it and you get it wrong, then potentially there is interest to pay on any underpaid payments on account. So, I think everyone should be aiming to get their tax returns done before the 31st of July for next year, or this year now, where we are going to be looking to get all of our tax returns filed before Christmas. We’re going to need everybody to bring their information in by the 30th of November at the latest to enable us to do that. I suppose flipping it to looking at it from our point of view, it’s very difficult for us to plan resources if we don’t know when the books and records are going to arrive at our offices. Many firms of accountants you perhaps get clients dropping books and records off in the last week in January and there is a mad rush to get them all finished, it means it’s very difficult to maintain customer service levels if there is a mad scramble at the end of January to get a load of tax returns done. So, we are encouraging our clients to bring all of their information in, by the 30th of November at the latest, but ideally before the end of July, so that we can plan our resources properly and make sure our customer service levels don’t dip as we get closer to the 31st of January, but also to give the clients plenty of notice as to what their tax liabilities are in January 2022, so that they can plan accordingly and save up if necessary.
What do you think are the benefits to keeping digital as opposed to paper records?
The massive advantage I guess is, what we’ve seen with lockdown is that (heaven forbid there’s another lockdown!), getting your information across to us is a lot easier if it’s electronic, rather than on a paper format. Also having it electronically, especially if you keep it up to date gives you a closer idea of how you are doing and where you are at in terms of potential tax liability, or potential income levels, to make really quick calculations of what you think the tax liability could be. It just adds to the speed of everything that we’re saying, in order to assess what your liability is now to deal with that being on a digital format is always going to speed up that tax return process. That is key to understanding where you are and what you can do.
Also, as we move towards Making Tax Digital, and we’ve already got Making Tax Digital for VAT registered businesses, it’s getting rolled out to further businesses shortly. Ultimately, everybody who fills in a tax return will need to keep their records digitally. So now I think is the perfect time to start thinking about the best way of keeping digital records. Because it’s not going to be that far in the distance where you are going to have to do them by law. And as Sean said, offices currently being closed are having to decontaminate books and records that we receive from people who are still keeping paper records. There has never been a better time to go digital and there are so many different alternatives with regards to software, that makes it really easy and also makes our life easier. So ultimately, your tax return invoice is going to be lower if you are digital rather than if you are handing us a carrier bag full of paper records.
The other thing I’ll add to this as well is that, for some people collating all of the records in time for getting the tax return done is always one of the impediments to getting information in early. So, everyone having to scramble around finding a receipt or finding a piece of paper is just freed up by using a digitally proof format, which allows you to collate everything as you go really, and saves you a lot of headache and a lot of time to get your information in. That’s probably the biggest apathy of people is digging out all of the the information in order to get the tax return ready for us to look at and going into a digital format kind of removes that impediment.