Get ahead of the game on tax returns
PUBLISHED: 16:16 17 January 2014 | UPDATED: 16:41 17 January 2014
Filing tax returns doesn't have to be a headache. Follow these tips for a less stressful experience this year, says Tax specialist Sue Daye, head of private clients at the Cheltenham office of national accountancy firm Crowe Clark Whitehill
Christmas is over and January already upon us, so how many people are still finding excuses to put off filing their tax return? If last year is any barometer the answer is too many. If you are finding it difficult to get this annual task underway, here are some tips that could make the experience less of a headache.
It is human nature to avoid unpleasant or cumbersome tasks for as long as possible, but the pain and stress builds as the deadline approaches and time starts running out.
Face the facts: the opportunity for forward planning on your tax for the 2012/13 tax year is long past, as is the ability to file a paper tax return - that expired at the end of October. The only option left is whether or not to make a Gift Aid contribution now, that can be carried back into your 2012/13 return. Then you need to get the paperwork together, sit down and fill in your return. HMRC has twelve months to review your submission from the date it is filed, so the earlier you lodge it, the earlier your tax position will be finalised.
If you are dissatisfied with the way your tax affairs panned out in 2012/13, take time after filing your return to consult a tax specialist before it is too late to do anything!
Here are my top ten tips to make filling in your return less stressful:
1. Calculate and file your return as early as possible. You will have a better idea whether a refund is likely, or whether you should be setting aside funds to make payments on account in January and July.
2. If you were employed in the tax year, as well as self-employed, you must fill in an employment page, even though tax was deducted via PAYE.
3. It may sound obvious, but insert all figures on the tax return. Don’t send HMRC a copy of your accounts and expect them to do the work.
4. Use the additional information space on the return to tell HMRC about any assumptions. If you are unsure whether a cost is allowable, give your reasons for claiming it.
5. Classify expenses correctly. If you put repairs in the depreciation box they will be disallowed.
6. If your profits from self-employment are between £0 and the personal allowance (£8,105 in 2012/13) don’t use your Annual Investment Allowance for assets purchased. Carry forward the value and write off in future years when you have tax to pay.
7. If you use assets or telecoms (such as broadband) for business and personal use, don’t forget to deduct the relevant percentage of personal use from your expense claim. Best practice is to keep a log of personal use.
8. HMRC will not allocate any brought forward losses for you. To make the most of any tax relief due you must remember to include these on your return.
9. File online by the 31 January deadline. Failure to do so will incur a statutory £100 fine and may incur further penalties the longer you wait. If you file after the deadline, estimate your tax liability and pay it immediately to avoid interest and surcharges.
10. If your affairs are complex consider delegating completion of your return to a tax specialist, experienced in tax legislation, who can ensure information is entered correctly.
After your return has been filed keep all relevant paperwork and records safe for at least 22 months from the end of the tax year to which they relate.
In the last tax year, 2011/12, a record 82.5% of tax returns filed by 31 January were filed online. You will not be surprised to learn that many waited until the last minute. On the last day 578,000 returns were submitted, with 46,000 filed in the busiest hour of the last day - 4pm to 5pm. That is over 12 filings per second, all relying on a good internet connection. Additional payments rolled into HMRC as over 700,000 people in 2011/12 were hit with penalties for late payment.
Remember, if you file your tax return after midnight on 31 January you will face a fixed £100 penalty. In addition minimum fines of £1,600 can apply for continued delay in filing. In worst case, this can result in your actual payment being double the amount of the tax due. Additional penalties are levied in stages if the tax due is also not paid on time.
A final thought: you may think that filing at the last minute means your tax return will only get a cursory inspection. Remember, HMRC has twelve months to review the submission from the date you file it. People who filed early will have their tax positions finalised and an easy conscience, whilst you will still be worrying months later. Take action now and avoid the headache this year. Best wishes for 2014.