The number of people filing early has trebled in the past five years. Photo: Getty
From the end of May anyone can complete their self-assessment tax return for the 2020-2021 UK financial year.
If you are employed but still need to do a self-assessment return, your P60 should be in the post, which is the last piece of paperwork you need to run the numbers.
This will include all details of your pay and benefits for the year, including any furlough cash.
The number of people filing early has trebled in the past five years. The taxman announced that more than 63,500 people filed their tax returns on the first day of the current tax year.
“It doesn’t come as a huge shock that back in January hundreds of thousands of people hit the tax return deadline without the cash or paperwork in place,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown. “A combination of lower and less predictable incomes made it much harder for people to plan for their tax bill.”
“This year, the taxman wants to avoid this nightmare again, so has put out a guide, and announced that we’re all being much quicker off the mark than usual. It’s fairly standard behavioural finance practice that if you want to get people to do something, you tell them that everyone else is already doing it.”
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It’s not just the taxman that benefits from early paperwork; here are five benefits from experts at Hargreaves Lansdown for those filing early.
1. 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 the bill, which gives you eight months to put extra cash aside to cover a shortfall.
2. 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.
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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.
3. 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.
4. 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’ll 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.
5. 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.
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