Completing your tax return can be boring. But since you’re filing it anyway, you might as well reap the many benefits of filing early, according to a personal finance expert
“The old self-assessment catchphrase that ‘tax doesn’t have to be taxing’ was patent nonsense,” says Sarah Coles, head of personal finance, Hargreaves Lansdown.
Coles gets it, doing taxes is “boring, often needlessly confusing, and expensive – the definition of taxing.”
However, she reminds us that leaving it to the last minute doesn’t make it any better – in fact it makes it worse.
“If you get started as soon as possible, it can help you plan your payments, get a speedy refund, and even save you money,” says Coles.
“Self-employed people have been free to complete their self-assessment tax return since 6 April. However, plenty of those who need to fill out a return are also employed – they might have two jobs or be a full-time employee with untaxed income from things like savings or investments,” she says.
She says some people might need to repay some of their child benefit because they or their partner earn over £50,000, or reclaim gift aid on charitable donations.
“Those people may have to wait for their P60 to arrive, showing the salary and benefits they received in the previous tax year. Once that drops into your inbox, it’s the perfect time to get cracking,” she says.
Below Coles shares her wisdom on why self-employed people or salaried people with a side gig should not see doing their taxes as a burden but as a way to get ahead and may be even save some money.
Seven reasons why it pays to file your self-assessment early
- You have time to plan for your bill
“You should be setting aside money to cover your tax bill as you go along, but sometimes life gets in the way. Completing your tax return early gives you time to save enough cash to pay your bill. Regardless of when you file, you have until 31 January to pay, which gives you months to put extra cash aside to cover a shortfall.
- You can choose to manage it by direct debit
“You can use the Budget Payment Plan service to set up weekly or monthly direct debit payments to spread the cost. This may not work for anyone with a particularly lumpy income, but may be a handy option for anyone who struggles with setting cash aside.
- You can do some tax planning before you file
“Most of what you do now will only affect your tax bill for the current tax year, but there are a handful of ‘carry back’ opportunities to cut your bill for the year you’re filing a return for. If you give money to charity using gift aid, the charity will reclaim basic rate tax, but higher and additional rate taxpayers need to claim the difference through their tax return: you can carry back this claim. It means you can make a donation now, and include it in the tax return you’re filing. This is particularly useful if your income is going to fall below a tax threshold this year, because you can claim gift aid in a year when you were paying a higher rate of tax.
“Another carry back rule applies if you’ve invested in an Enterprise Investment Scheme (EIS) in the current tax year, and you want to carry back income tax relief of 30% to the previous year. You can’t claim back more relief than the tax you have paid, so this is particularly useful if you won’t earn enough to offset the tax relief this year.
- You may get a speedy tax refund
“Payments don’t have to be in until January, but if HMRC owes you money, your refund will be processed straight away. And because HMRC isn’t as busy at this time of year, it should be fairly speedy.
- You can sort overpayments before it causes a cash flow nightmare
“When one parent earns more than £50,000 and they receive child benefit, you’ll need to declare this in your self-assessment form, and the taxman will claw some of it back. If you earn £60,000 or more, you can opt out, but if your income is between £50,000 and £60,000, or it fluctuates, you may need to pay back hundreds of pounds. This can cause cash flow issues, so it’s worth doing your tax return early, so you can assess the damage as soon as possible and manage the cost.
- You have longer to correct mistakes on previous tax returns
“If completing your tax return makes you realise you’ve made a mistake on the previous year’s return, then you have until 31 January to submit an amendment. If you leave it all to the last minute, it’s easy to be so busy with your tax return that there’s no time to amend the previous one.
- If the whole thing feels like too much admin, you can get help
“This is the best time of year to track down an accountant to complete a tax return for you, because it’s a relatively quiet period. If you leave it to the last minute, you may struggle to find someone with availability.”