Why File Your Tax Returns Early?

Dafferns Wealth

Filing your accounts early doesn’t mean you have to pay your tax early. It just means you know how much you will need to pay, and that offers a number of advantages. Here are some compelling reasons why it might be a beneficial move:

1. Improved Financial Planning and Analysis
Filing early provides more time to assess your financial health, as we can build your tax liabilities into our financial plan for you at our next review. More accurate information helps us make better strategic decisions, allowing adjustments to your financial plans and investment strategies. Cashing in an investment at the last minute to cover a surprising large tax bill could trigger a tax charge which might be avoidable with a little more planning. Equally, a well timed lump sum pension contribution will reduce your tax liability.

2. Better Cash Flow Management
By filing your accounts sooner, you get a clearer picture of tax liabilities early on, which helps in managing cash flows more effectively. This is particularly important for individuals with multiple income streams or large, irregular expenses. Planning for tax payments well in advance can prevent liquidity problems, as you know how much money you need to provision. If you are entitled to a rebate it is better to get this process started early. You are also able to reduce your mid year payment on account if you can get a return in early, avoiding having to make an overpayment and claiming it back later.

3. Avoiding Penalties and Last-Minute Errors
Filing accounts at the last minute can often lead to rushed work and errors, which might require amendments later. Early filing helps avoid the stress and potential penalties associated with missed deadlines or inaccuracies, ensuring compliance and peace of mind. Even your accountant is not infallible, and they are certain to be overloaded with work in December and January.

4. Building Stronger Relationships with Banks and Lenders
Whether it’s investors, lenders, or partners, showing that you manage your financial affairs diligently by filing accounts early can build trust and confidence. This is particularly valuable in maintaining good relationships with banks and securing favorable terms on loans or lines of credit. You will need your SA302, which confirms your tax payments, for a mortgage or remortgage, so having this to end if you are planning to deal with a lender is really important.

6. Strategic Tax Planning
The earlier you file, the more time you have for tax planning. With a clear understanding of your tax situation, you can work with your financial advisor to implement strategies that could reduce your tax liability, such as making charitable contributions, adjusting investment portfolios, or planning for deductions and credits. As mentioned above, a pension contribution will reduce your tax liability. You may need to consider the tax position of your spouse, or your businesses, before finalising your own return, so starting early is essential to build the full picture and get the optimal advice.

7. Reducing Stress and Increasing Focus
By filing early, you eliminate a significant source of stress and free up mental and administrative resources to focus on other important aspects of life and business. This can be especially beneficial for those managing extensive assets or running a business, as it allows them to concentrate on growth and development strategies without being bogged down by compliance deadlines.

Filing your accounts early is not just about avoiding negatives like penalties and rushed decisions; it’s also about positives such as better financial planning and strategic tax management. The more money you have, and the more complex your situation is, the benefits of early filing become even more pronounced. It makes for more efficient and effective financial management.