HMRC revealed that nearly 300,000 taxpayers filed their 2023/24 tax return in the first week of the 2024/25 tax year. What advantages does early filing offer, and why should you be encouraged to do so?
Basic premise
If your within self-assessment have until midnight on 31 January 2025 to file your 2023/24 tax return. While this is some way off, it is not too early to make a start on filing the return, and there can be advantages to early filing.
Pro advice. It’s always worth , youchecking to see if a return is still required, e.g. if the client paid tax under PAYE and previously a return was filed because their income exceeded £100,000, unless they need to file one for other reasons, they won’t need to file one for 2023/24 unless their income exceeds £150,000.
You will need to file a tax return for 2023/24 if any of the following apply:
- you had income from self-employments of more than £1,000
- you were a partner in a partnership
- you had total taxable income of more than £150,000
- you have property income of more than £1,000
- you received untaxed income of more than £2,500
- you had dividend income of more than £10,000
- you have capital gains tax to pay
- you are liable for the high income child benefit charge.
If you have taxable interest or dividends below the above limits and do not have to file a tax return for another reason, you can report the income to HMRC by letter.
Pro advice. If you no longer need to file a return, contact HMRC and request that the return for 2023/24 be cancelled. This can’t be done once a return is filed so ensure you do this well ahead of the busy January period.
Certainty as to tax bills
The earlier that the tax return is prepared and filed, the earlier you will know how much you need to pay. This will enable you to budget more accurately and to set aside funds to pay your tax bills.
For the self-employed who do not prepare accounts to 31 March, 5 April or a date in between, this will be particularly helpful this year. The 2023/24 tax year is a transition year between the current year basis of assessment which applied for 2022/23 and earlier tax years and the tax year basis applying from 2024/25. Under the tax year basis, the profits assessed are those for the tax year.
Where the accounting period does not correspond to the tax year, the profits for the tax year are found by apportioning those for the accounting periods covering the tax year. Accounts prepared to 31 March, 5 April and a date in between are treated as corresponding to the tax year.
Profit assessment. Where your accounting period does not correspond to the tax year, more than twelve months’ profits are assessed in 2023/24, increasing the tax bill. The profits for 2023/24 comprise two elements - the standard part and the transition part. The standard part is the twelve months from the end of the accounting period ending in the 2022/23 tax year. The transition part runs from the end of the standard part to 5 April 2024.
Pro advice. If you have unrelieved overlap profits (profits taxed twice) from the commencement of your business or on a change of accounting date, you can relieve these against the transition profits. This is the last chance to relieve those profits.
Example. Jimmy prepares accounts to 31 May each year. In 2022/23 under the current year basis he was assessed on the profits for the year to 31 May 2022. In the 2023/24 transition year, the profits for the standard part of those for the twelve months to 31 May 2023. The transition part is the period from 1 June 2023 to 5 April 2024, the profits of which are found by apportioning those for the year to 31 May 2024.
As the above example shows, nearly two years’ profits may be assessed in 2023/24. To spread the tax cost, the profits for the transitional part (less any overlap relief) are automatically spread across the five tax years from 2023/24 to 2027/28 unless you elect for them to be assessed early.
Once the 2023/24 tax return has been filed, you will know the extent of the transition profits and the impact on your tax liability over the next five years. This will help you to budget.
Investment income
Individuals with investment income may also have higher tax bills in 2023/24 than previously as a result of rising interest rates, and may find that for the first time the interest on their savings exceeds their savings allowance. Stealth tax due to frozen allowances and thresholds may have pushed them into a higher tax bracket, reducing or eliminating their savings allowance. Being aware of this ahead of the 31 January filing deadline will allow time to find the funds to pay the bill.
Time to pay
Filing the 2023/24 tax return early will allow those who may struggle to pay their tax bill in full by the deadline more time to make arrangements to pay in instalments. You can set up a budget plan and make weekly or monthly direct debit payments towards your next tax bill, meaning you will have less to find when the payment date comes around. You can only set up a budget plan if you are up to date with the payments from your last self-assessment bill. Those wishing to go down the budget plan route will need to sign into their online account to set one up.
Alternatively, you can set up a time to pay arrangement with HMRC and pay your tax bill in instalments. You may be able to do this online if you owe £30,000 or less, as long as your tax returns are up to date and you have no other tax debts to pay and no other payment plans in place. You can use the online service if you are within 60 days of the payment deadline. If you are not able to set up a time to pay arrangement online you can call HMRC to discuss the possibility of paying in instalments. Where an instalment option is agreed, interest will be charged, but you will avoid late payment penalties.
Early refunds and less stress
If you overpaid tax in 2023/24, the earlier that your return is filed, the sooner you will be able to receive a refund of overpaid tax.
Pro advice. Once the return has been filed, you can use the HMRC app to request a refund, or do so via your personal tax account.
Getting your 2023/24 tax return out of the way provides you with peace of mind, and avoids the stress of being chased for information as the filing deadline approaches. Starting the process well ahead of the deadline allows you to take your time to ensure that the information that you provide is complete and correct, and provides you with a longer window to deal with queries and to supply any additional information that may be required.
Filing early gives you a better opportunity to budget for tax bills, or receive refunds earlier. The advantage to you is a more even spread of your workload across the year. Starting early also gives you the chance to check whether a return is still needed and requesting for it to be cancelled if not.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.