Seven steps to avoid the pitfalls of a last minute tax return
- The self-assessment deadline is fast-approaching: your tax return needs to be filed and tax paid by midnight on 31 January.
- However, if you haven’t completed a return before, you want to pay by credit card, or you haven’t kept perfect records, you’ll need to get started now.
Sarah Coles, personal finance analyst, Hargreaves Lansdown:
"Some people have no staying power: when it came to keeping their New Year’s Resolutions, some had thrown in the towel within a couple of days. Those who are still putting off doing their tax return, by contrast, have shown incredible commitment, finding new and creative reasons to avoid the task for an impressive nine months."
"There comes a time, however, when even the most dedicated prevaricator needs to knuckle down – and that time is now."
"Your tax return needs to be filed and tax paid by midnight on 31 January, but it’s not worth the risk of leaving it until the last few days to start. There are various points in the process where you may encounter unexpected delays, so if you leave it too long, you may end up falling foul of one or more of them and missing the deadline entirely. At that point, your dedication to prevarication will be rewarded with at least a £100 fine plus interest."
Seven steps to last minute tax returns
1. Get the codes today
If you’ve never filed a tax-return before, you’ll need your unique taxpayer reference (UTR). This should have been sent to you when you registered for self-assessment. If you haven’t done this yet, do it now. It will take up to ten working days to reach you.
Once you have this, you will need to sign into the Government Gateway and wait for an activation code to be sent to you in the post: this can take another seven days.
2. Dig out your paperwork as soon as possible
Some of the key things you’ll need include certificates for any savings accounts or dividends, your pension statement, and proof of employment income (a P60 for any job you held at the end of the tax year and a P45 for any job that ended during the period). If you received any taxable benefits such as private medical insurance, you need your P11d.
For self-employed income you’ll want your bank statement, sales invoices, receipts for expenses and paying in books. If you received income from letting property, you’ll need all the paperwork for this too – including letting agreements and bills for expenses and management fees.
You should hunt these down as soon as possible, because if you need replacements, it’ll take time to order them.
3. Get to grips with the rules now
There’s a vast amount of information available on the HMRC website, highlighting rules that can save you tax – and time.
If, for example, you work from home, you can allocate a proportion of the household bills as expenses. Alternatively you can just use the flat rate of £10 a month for 25-50 hours a month, £18 for 51-100 hours, and £26 for 101 hours or more.
4. Do your expenses
In a nutshell, you can reclaim the cost of money you spend running the business. Allowable expenses include office costs like stationery or phone calls, travel, things you buy to sell on, the cost of running the premises, advertising or marketing, legal and accountancy fees and any staff costs.
Ideally you will have kept on top of your expenses as you went along, so it’s just a question of entering the totals into your tax return. If you’re unsure whether something can be counted as an expense, check with your accountant, try the HMRC website, or contact the self-assessment helpline.
5. Estimate if you have to
If you’ve left it too late and there’s some paperwork outstanding that’s not going to get to you in time, you can submit an estimated return, and update it when the paperwork arrives. You won’t pay a fine for this – whereas you will if you wait for the paperwork in order to submit the return.
6. Don’t forget to pay
The payment can clear on the same day if you pay by debit or credit card, but will sometimes take a day to go through. If you pay by BACS or direct debit it can take three days (or five days if this is the first time you have paid HMRC by direct debit). Once you have paid, it will take between three and six days to see your payment on the HMRC system.
If you want to be certain you have paid and the total has cleared, you may need to make your payment as much as 11 working days before the deadline – which in this case is 17 January.
If you plan to pay by personal credit card, you’ll need to file and pay by 13 January, because at that point HMRC is removing this payment option.
7. Do it better next time
If this tax return has proved a headache, this is a good time to make a few changes so that the next return is less stressful, and more satisfying.
If you can manage to do your expenses regularly, file your invoices in order, and go through statements to check what has been paid – and when – it will help you keep on top of your cashflow. It will also make an enormous difference to the length of time it takes to file your return.
If you found the whole process stressful or complicated, this is a good time to approach an accountant about your next tax return. Most people can benefit from the help of an accountant who knows exactly what you can and can’t claim for. In most cases, the cost of the accountant is more than offset by the tax they save you by having a thorough understanding of the rules.
Submitting your tax return will remind you of the money you saved by tax efficient saving, investing, and contributing to your pension. If it simply reminded you that your arrangements aren’t particularly tax efficient, then it’s too late to reduce your tax bill this time round, but if you take steps to make the most of your allowances, it could save you substantial sums next time.