1. Previous refunds if you overpaid tax
Installments are future installments on your next tax bill, based on estimates from the previous one.
One installment is due January 31 and the next is due July 31.
If you file an advance tax return at the start of the tax year in April, you know the actual amount of your bill.
This helps you plan your future payments. If you overpaid taxes, you should receive your refund sooner.
Learn more about payment by invoice.
2. It’s easier to plan your finances
Rising costs, high inflation and the cost of living are hitting small businesses hard, as many are still trying to recoup pandemic-related losses.
Knowing the true cost of your tax bill this far in advance should help you set aside money to pay it on January 31st.
Bear in mind that over the past two years HMRC has waived late filing penalties in February, giving people more time to file their taxes. This was to help ease the pressure on self-assessed taxpayers by not issuing a penalty, although interest was calculated from February 1.
This gave people the opportunity to set up a Time to Pay agreement.
Having a tax return filed early should put you in a better negotiating position if it arrives in January and you don’t think you can pay your bill.
Learn more about the HMRC payment deadline.
3. You can minimize the risk of errors (and fines)
HMRC says 630,000 people filed their tax returns on the January 31, 2022 deadline, including 20,947 between 11 p.m. and 11:59 p.m.
While leaving it late may be unavoidable for some, it carries the risk of making more mistakes than necessary.
And mistakes can lead to fines. Although HMRC does not impose penalties on people who have taken reasonable care when completing returns, they charge 0-30% of the tax due if people have been negligent.
4. Claim all the expenses you can
Having your records organized early not only helps you minimize the risk of errors. It also helps you claim all the right tax deductible expenses.
Claiming expenses reduces your total taxable profit, which means you pay less tax.
Eligible expenses include computer software, travel, and legal and financial expenses. Doing your self-assessment early means you can make sure you’ve included all of your expenses.
Learn more about eligible business expenses.
5. It gives you more time to seek professional advice
You can include the cost of hiring a professional accountant or consultant as a tax-deductible expense.
If you start your tax return early and are unsure of the details, at first you should be able to speak to someone at HMRC more quickly (their phone lines are notoriously bad during the self-assessment) .
But if you need more advice, it gives you more time to find the right professional to help you.
It’s important to do your research and make sure you find someone with a great reputation because bad advice can cost you time and money.
Their advice can help you set up a proper record-keeping system, and their knowledge of taxes and expenses could help reduce your overall tax liability.
Learn more about hiring an accountant and bookkeeping tips.
More guides to help you file your tax return
What time do you file your tax return? Let us know in the comments below.
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