Tax returns are a fact of life for every small business or self-employed individual. The good news is that you have until the end of January to get your self-assessment into HMRC and pay the tax you owe.
The bad news is that many sole traders and business owners leave this administrative right to the last minute before actually do anything.
In fact, it’s estimated that over 2 million small businesses don’t get round to doing their self-assessment until after Christmas. Many do their returns just a few days before the deadline. As a result, this can mean you end up scrabbling around for records and invoices and trying to find the cash to pay that all important tax bill.
Miss the deadline and you are likely to face paying substantial fines and sanctions from the revenue people. If you’re rushing things, you’re also more likely to make mistakes with your tax return.
Why You Should File As Soon As Possible
Tax filing is something we put off. And, if you’re always planning to do it tomorrow, you’re not alone. Getting your self-assessment completed and filed with the HMRC actually has a few advantages.
First, you’ve got it out of the way and you know where you stand and what you owe. Do it as soon as the new tax year starts on 6th April and you’ll have 10 months to make sure you have the money to pay your bill.
We’re moving towards Making Tax Digital which, therefore, means you’ll need to incorporate this into your accounting process. Making Tax Digital comes in for VAT this April and income tax returns are set to follow in the not too distant future.
Why is this important?
It means you should have all your information to hand to complete your return because it’s all stored digitally. There are apps and software programmes, for instance, that let you copy receipts and invoices and add them into your accounts. Having all this information at your fingertips should mean you can easily gauge how your business is doing. It also gives you the option of better tax planning for the future.
Knowing what your tax liabilities are means you will be able to plan your cash flow over the next 10 months without worrying there’s a nasty surprise around the corner. If you’re rushing to get your tax return in at the last minute, you’re likely to make mistakes. You may also find you don’t have the funds available to pay what is due.
Doing your tax return early doesn’t mean you have to pay it straight away either. It just means, as a result you are better prepared and know what you have to pay before the deadline on 31st January.
You could be due a tax refund and doing your return earlier should ensure you get this quicker. Refunds can happen because of mistakes in calculating tax codes for employees, for example. If you work as a builder and operate under the Construction Industry Scheme it won’t be unusual for you to be eligible for a refund. Obviously, it’s better that this money is in your account gaining interest rather than sitting in HMRC.
What Happens If You Miss the Tax Deadline?
If you are leaving your tax return until the last minute, you don’t have much time to react should you encounter problems. It’s easy to panic and get your calculations wrong and that can cause all sorts of problems with the HMRC.
You could end up with a £100 filing penalty if you miss the deadline. If you are more than 3 months late, you’ll start to get daily £10 sanctions up to £900. If you haven’t filed for 6 months, you’ll most likely find yourself getting a fine of £300 or 5% of your tax bill, whichever is the higher.
What late filing may also do is cause the team at HMRC to take a closer look at your self-assessment or company tax returns from the past and check for anomalies. If they spot mistakes, they may well open a case file on your business and want to take a closer look at your accounts.
Get Your Tax Done in April
It’s easy to put off doing your tax return. You’re busy at work and don’t have time to sit down and get it out of the way. If you want to be effective in your financial planning over the next few months and be clear on what you owe, however, it’s advantageous to do those returns as soon as the new tax year comes into effect.
Working with a specialist tax and accounting service will ensure that you not only have a clear idea of where you stand but that you claim for the appropriate expenses. You might even be due a rebate from HMRC because of overpayment, particularly if you are registered under the Construction Industry Scheme.
Need assistance with your self-assessment tax return? Want to get it filed as soon as possible? Get in touch today!