Why Is It Important To File A Tax Return
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- 06-04-2022
As a business owner, you will need to b aware of your responsibilities when filing tax returns. This article looks at why it is important to file a tax return.
Do you need to complete a Self Assessment tax return?
Only a select few people are required to file Self Assessment tax returns. Those employed and paying tax through the Government's Pay As You Earn (PAYE) scheme do not need to file Self Assessment tax returns.
Those who do include those who are self-employed, trustees or executors of estates, partners in an LLP or other partnership business, amongst others.
You may also have to pay tax via a Self Assessment for different types of taxable income you receive. For example, other untaxed income such as money from renting a property, savings, investments, dividend income, foreign income, or tip/commission work will all have to be declared through a tax Self Assessment.
You can sometimes pay tax on these non-employment incomes through your PAYE code, but there are maximum limits applied, and you may end up simply having to file a Self Assessment anyway.
Importance of Filing Income Tax Returns
According to the Income Tax Act, if you fall into the bracket of people eligible for Income Tax, your Income Tax returns must be filed on time and accurately.
There are late payment penalties for failing to do this, which can be severe depending on your individual situation. Alternatively, there are also benefits you can glean from accurate and timely filing of your Income Tax Returns. These include:
If you make most of your income from investments in the equities or shares markets, filing your Income Tax Returns appropriately can prove a great benefit.
Should your total annual salary from your investments equal less than the exemption limit, your ITR may seem redundant, but it can help to adjust your capital losses against your capital gains. You can also carry any losses forward for future Tax Returns, depending on whether you have filed anything for that financial year
Once your taxes have been deducted, you will only be eligible for a tax refund from the Income Tax Department if you have filed an Income Tax Return for that financial year.
This can be crucial for many self-employed people or those collecting income from rental properties, and it is worth the effort to make sure you are eligible for these refunds or tax credits.
Once your filing is complete, you can check with HMRC (Her Majesty's Revenue and Customs) about any refunds you qualify for
Aside from being a legal requirement for those earning income in the UK, from whatever source, your Income Tax Return also serves as proof that your income exists and is therefore valuable when attempting to take out a loan.
Banks, lenders and financial institutions will look for your ITRs when you apply for a loan to prove your yearly earnings, and if you have filed your returns accurately and on time, this will make you look like a far more attractive prospect to these lenders and banks
If you are eligible for any tax deductions, you will only be able to claim these by filing your Income Tax Return.
Without this data, HM Revenue and Customs won't be able to verify if you qualify for these deductions, so you may end up paying more than you need to unless you file accurate and timely Tax Returns
Filing your ITR will also make it easier for you to own foreign assets. It is a legal requirement to declare these in your Tax Returns, including any immovable assets, such as bank accounts.
Failing to do this can land you in some serious trouble, with heavy penalties for those inaccurately reporting their assets to HMRC.
When do you need to pay your tax liability?
If you need to file Self Assessment Tax Returns, you must pay the balance of any tax liability you are eligible for by the 31st of January in the relevant tax year. You will usually be allowed to split your tax liability payments into two in the subsequent years.
They will take the first tax liability payment as a guide, placing one half of the payment on the previous 31st of January date, with the second half having the due date of the 31st of July. Regardless of how you file your Tax Returns, whether online or on paper, your tax liability will be due every 31st of January.
Penalties for late payment
Depending on how late your tax payments are will determine how severe the penalties you have to pay will be:
after 1 month you will be charged 5% of your tax liability
after 5 months its another 5% of your unpaid taxes owed
after 11 months its another 5% of all tax outstanding
If you have been charged a late filing penalty for your tax returns, you have 30 days to pay that fee. Failing to do this will add interest to the fee you must pay at a standard rate of 2.6%.
This element of tax affairs is why it is important to have appropriate tax planning for you or your business. Working out how much tax owed you have is crucial to keeping things running smoothly.
What are the important deadlines and dates for Self Assessment?
Defining the "tax year" is important when discussing important tax deadlines. The tax year runs from the 6th of April to the following 5th of April in the UK.
So, as of writing this, the current tax year will run from 06/04/2022 until 05/04/2023. The important 31st of January date for this tax year is 31/01/2023. The 5th of October for this tax year will be 05/10/23, and the 31st of January following this tax year will be 31/01/2024.
Here is a rough idea of what you need to do on each of these and other important dates during the tax year:
The official end of the tax year in the UK is the 5th of April. Those required to file a yearly tax return for the tax year just gone will be notified of their obligations shortly after this date.
This is when you need to pay your second payment on account of the previous tax year. For example, your second payment on account for the 2022/2023 tax year will be due on the 31st of July 2023.
If you failed to file a tax return for the previous tax year up to the 5th of April deadline, you must notify HMRC by the 5th of October.
This can also be used to notify HMRC that you have some un-taxed income or your capital gains is in excess of recent limits, which you can find on the GOV.UK website.
This date is the filing deadline for filing tax returns in paper form. If you fail to do this, you will face a penalty, regardless of whether you have any tax to pay.
This is the deadline for filing your tax return online if you want HMRC to collect the tax using your current tax code at the correct tax rates.
This will be possible if you need to pay less than £3,000. However, if your annual income is over £30,000, you may have more tax to pay due to your tax code.
If you are filing your taxes online, this is the deadline to do it. Missing it will incur a penalty, even if you have no taxes to pay.
You also need to pay any outstanding balancing payments by this date. So balancing payment for the 2022/2023 tax year will be due on the 31st of January 2024. Any payment on account you also have outstanding for the 2022/2023 tax year will also be payable on 31/01/2023
If you notice any inaccurate data or figures on your online or paper tax returns for the previous tax year, you have 12 months to rectify this by the 31st of January in the following year. Even if you filed your tax return late, you still need to abide by this deadline.
Alternatively, this deadline can be extended if your notice to file your tax return was given after the 31st of October after the tax year ended.
What records do I need to keep?
You are legally required to keep hold of documents relating to your Self Assessment tax returns. HMRC may need to check your tax returns and request these documents to verify them. These can be digital, or paper returns and HMRC can penalise you for not keeping complete and accurate records of your returns.
If you complete Self Assessment tax returns as a self-employed individual, you should hold onto any tax records for at least 22 months after the tax year has ended.
So, for the 2022/2023 tax year, you should keep hold of your records until the 31st of January 2025. If you submit your tax return late, you can hold onto your records for at least 15 months after you file the return.
Alternatively, for self-employed people or those taking their income from rental properties, you should keep all of your business records for at least five years after the 31st of January tax year deadline. For example, you should hold on to your business records for the 2022/2023 tax year until the 31st of January 2029.
Are you looking for a tax returns accountant in Wakefield and west Yorkshire? Follow the link below to contact our tax advisors.