Top 5 reasons to file your tax return early in 2021
Now that the new financial year is upon us, we’re looking at the top reasons why it makes sense to file your tax return early.
Of course, it’s understandable that this might not be top of your priority list given the tough period so many businesses are going through right now. But there are some often overlooked benefits to be gained from filing early – and they may help with things like cash-flow and time-saving, which can only be a good thing, right? Let’s take a look.
Why it makes sense to file your tax return early
1. It might mean you can pay less on your next payment on account
You should already have paid your first payment on account for 2020/21 (the deadline was 31st January this year). But there’s a chance you could lower your July payment if you earned less in 2020/21 than you did in 2019/20. This is where filing your tax return early comes in handy. If you file now, and the return shows that you earned less than predicted in 2020/21, you can ask HMRC to reduce your July payment on account to reflect this.
2. Getting it out the way now means you can focus on your business
Filing your tax return early means you’ll have one less admin job to deal with later down the line. Generally, it’s quicker and easier to file while things are fresher in your mind, so it’s likely you’ll save time in the long-run by getting it done now, too. Time saved on admin means more time to focus on the things that count – like strengthening and running your business.
3. The earlier you begin, the more time you have to get organised
Tax returns are much less daunting when you’ve got plenty of time to tackle them. By filing early, you’ll be putting yourself in a much better position to get organised and gather all the information you need – without the pressure of a fast-approaching deadline.
4. It could put you in a better position to access mortgages and other loans
When you’re self-employed, tax returns are your only real way of proving how much you earn. The sooner you file your 2020/21 return, the sooner you’ll have an extra year’s worth of accounts to show, which could help you with applications for things like mortgages and other loans.
5. It means you could get a tax refund earlier
Sometimes we end up overpaying tax, which results in a refund being paid. The sooner you pay your 2020/21 tax bill, the sooner you’ll get your refund if you’re owed one.
If you file your tax return early, do you have to pay early?
You can file your tax return without paying your bill at the same time – filing and paying are two separate actions. But don’t forget about payments on account, which are due by January and July each year. Unless it’s your first ever tax return, in which case they’ll be due the following year.
Say, you want to file your 2020/21 return in May 2020. If it’s your first ever tax return, you won’t need to pay this bill until January 2021 – even though you’ll have filed early. If it’s not your first tax return, you’ll already have made one payment towards it in January, but you won’t have to make the second payment until 31st July – again, even though you’ll have filed earlier than this.
Not registered with HMRC yet? We’ve got a quick guide to registering as self-employed online to help with that.