In 2020, some 700,000 taxpayers left it to the very last day to file their self-assessment – with a nail-biting 26,562 taxpayers leaving it to the last hour, Crunch reported.
Preparing your self-assessment in June could help avoid unnecessary stress, penalties and give yourself a six-month runway to budget for your tax bill. Thing is, will you put your head in the sand or get a headstart?
We have listed some reasons why you should prepare your self-assessment or company accounts now, rather than putting it off at the last minute.
Reason: #1 Avoid cursing yourself 🤬 because you paid HMRC late fees
Every year HMRC rakes in millions in fines and interest from those filing late. Do you want to pay HMRC anything more than you have to?
If you put filing and tax budgeting off until January you could wind up with not enough money to actually pay your taxes. That means you will be throwing money down the drain on HMRC’s famous on-the-spot £100 fines.
If you really do not want to give HMRC a single pence more than you owe, then be aware of the late fees and fines:
A £100 instant fine if you miss the January 31st deadline
£10-per-day fines (for up to 90 days) if you haven’t filed by 30th April
A £300 fine (or 5% of the tax you owe – whichever is greater) if you still haven’t filed after another 90 days
Another £300 fine (or 5% of the tax you owe – whichever is greater) if you still haven’t filed within a year
Additional penalties – including up to 100% of owed tax – if HMRC believes you are intentionally delaying your filing.Source: Crunch
If you are among the millions excluded in the UK government’s COVID pandemic financial support schemes, paying late fees could be disheartening.
Wouldn’t you rather spend £100 on a meal with mates, your kids or loved ones? Buy an amazing gift for yourself for filing on time? Or just pay more off a credit card bill?
Reason #2: Know what you owe so you can budget for 6 months, not 6 days
Although you may choose to file your Self Assessment early, your tax bill still isn’t due until January 31st. That gives you six months to budget for your tax bill. Even if you just start doing the calculations now you can give yourself a better idea of what you owe in January if you decide to file later this autumn.
Once you figure out how much you owe you can then scale back on spending.
- Set up a monthly standing order to get your tax fund rolling if you haven’t started already.
- Find ways to claw back funds with little effort, as we have outlined in this report.
- If you estimate a sizeable bill, then you may have to take on extra jobs with existing or new clients and set tax money aside right away.
However, if you are accustomed to long-term contract freelancing, and recruiters stop calling or contracts suddenly dry up, you may need to consider setting up on your own or join forces with a fellow freelancer to diversify the sectors you work in. This will be easier if you have a portfolio of work to show potential clients.
Top tip: Get client testimonials now rather than later.
Reason #3: Avoid being left on hold with HMRC’s personal tax helpline
“If you’ve ever attempted to get in touch with HMRC’s personal tax helplines in January, you’ll most likely know their hold music by heart.The taxman doesn’t have the best reputation for customer service, and unfortunately, that reputation is hard-earned,” said Crunch.
Crunch reported, according to HMRC’s own data, released in January 2021, the average waiting time for callers had risen to almost 14 minutes, and 49.2% of callers had to wait for more than 10 minutes to be answered in January 2021. Almost 400,000 callers, around 1 in 5, didn’t manage to get through at all, abandoning their attempts whilst waiting in the 3 month period from September to November 2020.
Reason # 4: Beating the January rush to register online
You must also register with HMRC in advance, a process the Crunch report reminds us takes time. Out of peak times, it can take a fortnight or so, but if you wait until the January rush (the busiest time for HMRC’s customer service) it could take far longer.
It’s worth remembering that there are two stages to registration. First, you need a Unique Taxpayer Reference (UTR), which you use to register for HMRC Online Services. Secondly, HMRC will send you a PIN number in the post to access Online Services where you can file your Self Assessment. This process may become simpler when HMRC rolls out online tax accounts, but for now, you’re reliant on Royal Mail and HMRC to get registered.
Reason #5: Cut down on accountancy fees
Preparing your accounts takes time. If you start in June, you could get a hold of your files, receipts, do your calculations, and do any research or call HMRC for any questions you may have so you still can file on your own.
Sole traders can often save a lot on bookkeeping fees when they do most of the work on their own. However, limited company directors that prefer an accountant to handle their tax affairs can pay up to £1500 each year, but that could also include:
- a mail direction service
- completing your company’s annual accounts
- processing payroll for you and any other staff members
- submitting quarterly VAT returns (if you are VAT registered)
- managing any correspondence from Companies House; accounts & corporation tax return
- advice on business structuring, pension contributions and costs or company set up
- initially registering your business with HMRC.
Reason #6: Potential for a tax refund
If you mix salaried and self-employment you may be owed a refund from HMRC, especially if made redundant.
Reason #7: HMRC’s new points-based penalty system
HMRC is changing its tax return penalty system. It’s aiming to punish repeat offenders and be more lenient towards those who make the odd mistake, reported Simply Business, the insurer. The Freelance Informer has covered the report’s highlights including when the points system starts, how the system works and how much you could end up paying in late fees.
The HMRC’s points-based penalty system will keep tabs on taxpayers that consistently miss deadlines. The more points accrued means the larger the fine. The fines will also be larger than those currently in force.
Reason #8: Feeling prepared, rather than pressured in the new year
Most people have the luxury of taking some time off during the December holidays only to never fully enjoy themselves. Why? They have their unfiled tax return looming overhead. If you had already filed and been budgeting for your tax bill since June, then you could truly enjoy that time off and start the new year on a steady footing.