How to Make Tax Less Taxing
Last year, the most popular time to submit personal tax returns online was between 4pm and 5pm on 31 January, just hours away from the deadline. During this period, the Inland Revenue received 17 submissions every second. Not everyone made it in time, though. Excuses included: “My mother-in-law is a witch and put a curse on me” and “I’m too short to reach the postbox.”
January might seem ages away, but now is the best time to make a start on your tax return. Although it’s customary to leave self-assessment to the last minute, you can save yourself some stress (and maybe even a few quid) by getting going right away.
In this post, I’ll explain three tactics for making the self-assessment process less taxing.
1. Calculate your tax liability now and start saving
Even if you don’t want to actually submit your tax return now, it’s worth at least working out how much you owe. Having a rough idea of the amount allows you to start putting aside money. If the total comes to £3,000, you can save £300 each month between now and January, rather than having to find a big chunk of money immediately after Christmas. The longer you leave it, the bigger the amount you need to find in one go.
2. Get organised with your paperwork
Completing the form is much more straightforward if you can easily access all the necessary information. Make sure you save:
- Dividend vouchers
- Records of any other income
- Running total of turnover and overheads for sole traders
Software such as TaxCalc stores all your standard details and automatically transfers them to your latest tax return each year. It also includes a What If? feature so you can see the tax implications of different scenarios.
3. Pay Your Tax Monthly
It might seem perverse to pay your tax earlier than strictly necessary. However, this can make your finances more manageable. You won’t get any benefit from holding onto your money if you need to dip into your overdraft to cover the bill in January.
If you’re self-employed, you can use HMRC’s ready reckoner to calculate your likely tax bill and then create a budget payment plan. You decide how much you want to pay each month (or week). You still need to pay any tax outstanding by the deadline of 31st January.
In 2018, almost 750,000 people submitted their tax returns late, incurring penalties and interest:
- 1 day late – £100
- Up to 3 months late – £10 for each additional day (capped at 90 days) in addition to the initial £100 fine (up to a maximum of £1,000)
- 6 months late – either £300 or 5% of the tax due (whichever is higher) in addition to the penalties above
- 12 months – an additional £300, or 5% of the tax due, in addition to the above penalties. In some cases, you could be fined 100% of the tax due, thereby doubling your bill.
By getting ahead of yourself, you can have a much happier and wealthier New Year.
Image © Brian Jackson – stock.adobe.com