Many freelancers are already feeling stressed about “painful” surprises that could be announced in the Labour Party’s Autumn Budget. That is why freelancers should aim to get their tax returns sorted now, rather than when the annual January Blues hit.
Early birds get refunds quicker
While 31 January is the final deadline for online tax return submissions, don’t fall into the trap of procrastination, advises Sarah Coles, head of personal finance at Hargreaves Lansdown.
The podcast host and personal finance expert says tackling your tax return early could bring a welcome sense of relief and even some unexpected financial rewards.
“The best time to do a tax return is always ‘yesterday,’ but the second-best time is today,” says Coles.
She continues, “It’s miles more sensible than leaving it to the last possible day – or the last possible minute – when you’re likely to be stressed, rushing and prone to mistakes.”
Most people, even hard-working and highly organised ones, can be tempted to put off tax returns. That said, filing in advance of hundreds of thousands of people who file on January 31st could make a difference to your finances and festive season. Here’s why:
Speedy refunds
While payments aren’t due until January, any refunds owed to you will be processed immediately. With HMRC less busy now, you could have your money sooner.
Better budgeting
By seeing the whole picture in advance, you can set up a payment plan and spread the cost instead of facing a daunting lump sum in the new year. You can even pause payments for up to six months if needed.
Financial foresight
You can get a clear picture of your tax liability and plan ahead, especially if future tax bills could rise as a result of new Budget policies coming out in October. Knowing the amount gives you extra time to save if necessary.
Withdraw with ease
If your circumstances have changed because you stopped working and you don’t need to file a tax return, you need to act now and let HMRC know, so they can have time to issue a withdrawal notice before the end of January. However, if you leave it to the deadline, you’ll need to do a tax return anyway in order to avoid a fine.
Tax planning power
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, according to Coles.
She says, “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.”
Coles explains 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,” she says.
Correct past mistakes
Spot an error on a previous return? You have until 31 January to amend it. Filing early gives you the time to rectify any mistakes without the last-minute rush.
Reflect and refine
Use your tax return as a financial health check. Identify areas for improvement, such as consolidating accounts or sheltering savings and investments in ISAs and pensions.
“Even if you didn’t pay any tax on them, you’ll have had to include all the details on your tax return, so it’s a handy reminder that if you were to move them into an ISA, you could avoid this time-consuming paperwork too,” says Coles. “You might be bored of admin at this stage, but a few minutes now should make the whole process easier next year.”
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