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5 reasons why it might pay to complete your tax return early

We look at five reasons why completing your self-assessment tax return early could leave you better off.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

So far 2020 hasn’t exactly been the year we were expecting. And that’s especially true for a lot of us when it comes to pay – in fact 8.9million, or 1 in 4, of the UK workforce have been furloughed. Even if things return to some kind of normal over the next few months, there’s the risk that any loss of income could lead to hitting the tax return deadline with a cash shortfall.

The deadline for submitting your tax return online isn’t actually until the 31 January, so it could be tempting to put it off, especially with all that’s going on in the world. But if you get stuck in now, not only will it give you time to plan for paying your bill, it could even leave you better off.

Remember this article and our guides are not personal advice. If you are unsure if a course of action is suitable or you need help with investment or financial planning decisions, please speak to a financial adviser. Tax rules change and benefits depend on individual circumstances.

Why it pays to do your tax return early

  1. You have time to plan for your bill (and address any shortfalls)

    Where you can you should be setting aside money as you go along to pay for your tax bill, but we all know that this is easier said than done.

    By completing your tax return early it gives you time to save enough cash to pay your bill, or at least gives you a chance to make a plan to save. Regardless of when you file, you have until 31 January to pay your tax. This gives you about seven months to put extra cash aside to cover any shortfall when you can.

  2. You can make the most of tax benefits

    Most of what you do now will only affect your tax bill for the current tax year. But there are a handful of ‘carry back’ opportunities to cut your tax bill for the year you’re filing a return for.

    For example, if you give money to charity using gift aid, the charity will reclaim basic rate tax. But those who pay tax at a higher rate need to claim the difference through their tax return – you can carry back this claim. It means you can make a donation now, and include it in your 2019/20 tax return. This could be useful if your income is going to fall this year, because you can claim gift aid in a year when you might have been paying a higher rate of tax.

    Another carry back rule applies if you’ve invested in an Enterprise Investment Scheme (EIS) in the current tax year. This means you can carry back income tax relief of up to 30% to the previous year. You can’t claim back more relief than the tax you have paid, so you might consider this if you won’t pay enough UK income tax to offset the tax relief this year.

    An EIS invests in smaller companies which makes them higher-risk. Investing in EISs isn’t for everyone, they are aimed at wealthier, sophisticated investors who can afford to take a long term view. So if you're not sure what’s right for your circumstances, please ask for advice. All investments and their income fall as well as rise in value, so you could get back less than you invest.

    Find out more

  3. You might get a speedy tax refund

    Even though your own payments don’t have to be made until January, if HMRC owes you money your refund could be processed sooner than you expect. Because HMRC is unlikely to be as busy with tax returns at this time of year, it’s unlikely to take as long as usual.

  4. You have longer to correct mistakes on previous tax returns

    If completing your 2019/20 tax return makes you realise you’ve made a mistake on the 2018/19 return, then you have until 31 January 2021 to submit an amendment.

    If you leave it all to the last hour, just like over 26,000 did last tax year, it’s easy to be too busy with your current one to amend the previous tax return.

  5. You’ve built in some wiggle room

    If you’re filing your tax return last minute and something goes wrong, then it’s unlikely you’ll have time to put things right.

    By starting now you can overcome any issues, from not being able to log into the Government Gateway to complete your return, to realising you’ve misplaced paperwork and having to order replacements.

More useful tips for the self-employed

Running your own business can have its perks. But if the past few months have taught us anything, it can also bring times of uncertainty and less security than being on the pay roll.

Download our guides for more tips on pensions for business owners and helpful tips on saving for the future if you work for yourself.

Guide to pensions for business owners

6 smart ways to save for the future

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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