3 Ways Preparing Your 2020/21 Tax Return Early Can Be a Win-Win
Author: Janet Collins, LHP Director
I’m imagining by now you have received a letter from HMRC asking you to file your 2020/21 tax return by January 2022. Although January 2022 is months away, did you know you can file your tax return any time after 6th April?
Why bother you might well ask. Well, apart from avoiding headaches involved in last minute submissions, there are 3 very good reasons for filing your tax return sooner rather than later.
1. It could reduce your payment
Firstly, if you get your accounts and tax return done earlier, it may affect the tax you need to pay on account in July 2021 (if you were required to pay them). Usually, the payment on account in July is half of the previous year’s tax liability. If your tax bill for 2020/21 is less than 2019/20, you can reduce the payment accordingly. LHP can advise you here.
A common myth is that once your tax return is filed, HMRC will expect you to pay any tax owed promptly. Not true. Even if you file your tax return early with HMRC, you are still only obliged to pay any tax liability by the normal due dates e.g. 31st January 2022 (balance and the first payment on account, if applicable) and 31st July 2022 (second payment on account, if applicable).
You may not be aware too that the Coronavirus support payments from SEISS (self-employment income support scheme payments during Covid) are taxable and are required to be included on your 2020/21 tax return. You will also need to report if these were actually claimed incorrectly in error.
2. It gives you time to plan cash flow and future payments
Secondly, if you do complete the 2020/21 return early and it does not reduce your tax bill, it still allows for financial planning towards the payments in January and July 2022. And if needs be, start speaking to HMRC for time to pay.
Not rushing to complete your tax return should also reduce the risk of errors being made. It also allows time for bank statements and any other financial documents you may need in order to file the return, to be collated in a way that does not involve a mad rush.
3. You could be eligible to claim tax relief for any losses
Finally, the third reason, is that you can claim tax relief for losses under the new rules for carry back loss relief. We at LHP Chartered accountants can advise you here.
It is worth noting too that If you took advantage of last year’s extension to the deadline, HMRC has warned it does not plan to do this again.
If you need advice on any of the above, including help with claiming tax relief, financial forecasts and filing year-end returns early, please get in touch.
Our team of cloud accounting specialists with over 85 years’ experience in tax matters is based in five offices across South West Wales and are here to help you with your finances. Let’s talk.