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There is now just one week to go before the 31 January deadline for filing a self-assessment tax return, leaving some short of time for getting details and paperwork together and get their tax bills paid – particularly for those doing a return for the first time.
While it is undoubtedly a time-consuming task if you have several sections to complete, it’s also a useful exercise for getting a clearer picture of where your finances really are – particularly for sole traders or freelancers. Many other individuals or businesses may need to file a return too – here’s how to check if that’s you.
As well as filing your return by the deadline, you must also pay your outstanding tax bill by then, so getting organised and completing your return rather than leaving it until the last moment is a must – particularly if you expect to need time to pay the bill afterwards. Here are some top tips from experts in the field of finance to help you wrap it up first time around – or perhaps to improve your efficiency in doing it next year.
File on time and avoid the fine
This isn’t just for individuals filing a return, but businesses too – at the turn of the year, HMRC said almost 5.5m people still needed to file their return for this year.
It seems obvious, but the biggest tip and most important aspect is to file your return on time; paying tax is never going to be a huge positive, but it certainly doesn’t make sense to add a fine on top of it to what you need to pay.
More than a third (35 per cent) of businesses file their return in January, says data from FreeAgent, with 12 per cent acknowledging they had previously filed after the deadline.
For individuals doing that, the immediate fine is £100 and it can only rise from there if you delay even further.
Do you have a side hustle? Do you know if that means you have to file a return?
“The entrepreneurial spirit is well and truly alive in the UK – with two in five Brits boosting their income with a side hustle. However, the confusion around rules for side hustle income can lead to costly mistakes if people don’t realise they need to file a tax return,” said Louise Bastock, money expert at finder.com.
“Those earning more than £1,000 a year from their side hustle – including making money from online platforms such as Vinted or Etsy – need to submit a self assessment tax return.”
Check to see how you can lower your tax bill
It’s vital that to get an accurate picture of what you need to pay, you enter the right details – in both your income and expenditure.
That means checking through what you’ve spent in a work capacity, where applicable, but it also means checking other allowances such as pensions relief, charity donations and more.
Ensure you’re making the right deductions and you can lower your bill – and if you’ve already paid, or you didn’t know to check these things this time around, make a note next year as you go to give yourself a better chance of being well-organised.
It’s also worth noting that asking or planning to ask HMRC isn’t necessarily the best idea – AJ Bell say a third of calls to them went unanswered and that they are “ill-equipped to deal with” a higher volume of questions, particularly in the wake of changes to inheritance tax rules, capital gains tax rules and more.
Check what you’re eligible for well ahead of time.
“Organised record-keeping is essential for a smooth tax return process. Make it a habit to store all your invoices, receipts, and important financial documents in one place, whether that’s in a physical folder or digitally,” says Jodie Wilkinson at takepayments. “This means you can quickly and accurately input your income and expenses when it comes time to file.”
Consider a separate account to keep track of what you owe
For self-employed people or those who receive income from different places and different times of the month, one good way to ensure you don’t get a nasty surprise in your tax bill and struggle to pay it is to remove a portion of money from all incomings.
If you know your tax bracket and how much you’ve paid in previous years, it can be helpful to work out a percentage to siphon off from earnings – just as if you were paying tax and National Insurance at source – and place that straight into a different bank account.
First, you’ll know when you go to file and pay your tax bill, you should have the money easily accessible to cover the bill, and secondly, you can earn interest on it during the course of the year if your separate account has a higher interest rate on it.
This can also help you budget properly across the year with the money which is effectively your take-home pay.
Perform a monthly reconciliation to prepare for next year
Checking on money, earnings and taxes every month might seem like a drag, but it can seriously lower the stress levels – and time taken – when it comes to filling in a return.
“Compare your income and expenditure with business bank statements to ensure your records are correct. In other words, make sure your bank balance as per your records tallies with the actual bank statement,” advises Jonathan Wingfield of Wingfield Accountancy Services.
Not only does this let you resolve any errors of issues quickly, but as Wilkinson points out, “you’re not only reducing that last-minute panic at the end of the year but also making your financial picture a lot clearer, meaning you can budget effectively.”
Remember, the more robust processes you have in place to take care of your money during the year, the easier it will be to file your self-assessment tax return on time the following January – or even allow you to do it well before then!
