How to spring clean for the new financial year
Spring cleaning is all about preparing your home for the new season, but how many of us do the same when it comes to getting ready for the new tax year? A new tax year begins 6 April each year and usually marks the start of a new tax period for those who complete a self-assessment tax return. Not only that, but it is also often when new tax updates come into effect; with some of the most significant changes being any increases to personal allowance or income tax thresholds. Giving your finances a spring clean for the new tax year is a particularly important exercise when you are required to complete a self-assessment tax return because it ensures that you’re well prepared for the next upcoming deadline.
Here are 3 simple steps to spring clean for the new financial year:
1. Clean up any messes first
By this we mean if you’ve missed the most recent tax return deadline which was back on 31 January, then the first task to tackle will be getting this done. If you have missed the deadline, do not panic! In fact, it was estimated that 2.3 million people missed the deadline back in 2022 so you’re certainly not the only one! It is especially common for those who have to complete their self-assessment tax return for the first time to miss the deadline due to not realising that they need to register for the Unique Tax Reference (UTR) number first in order to be able to complete their return, and this can take 10 days to receive. So, if you were caught out by this, don’t let that stop you from still completing your tax return, even if you are late.
Unfortunately, you’ll find that if you did miss the deadline on 31 January, you’ll likely have received an automatic £100 fine. It can be a bitter pill to swallow, but our advice is to deal with it quickly to prevent it from escalating. Be aware that you’ll continue to receive fines the later you leave it to submit your tax return and on top of that, any tax due that has not been paid will beginto accrue interest.
If you have not filed your self-assessment tax return after 3 months of the 31 January deadline, you’ll then start to receive a penalty of £10 per day for up to a maximum of 90 days (potentially leading to a £900 fine on top of the initial £100 fine). If you leave it even later and have not submitted it even after 6 months of the deadline then you’ll be expected to pay an additional 5% of the tax owed or £300 (whichever is greater). Finally, if after 12 months you have still not filed, you’ll receive yet another 5% penalty of the tax owed or £300 (again, whichever is greater). In extreme cases, HMRC may demand up to 100% of the tax owed as a penalty.
Furthermore, if you do have a tax liability that is due to be paid and you are late paying, you’ll find that HMRC will charge 5% of the tax due on top if you have not paid after 30 days, another 5% if not paid after 6 months and a final extra 5% if not paid after 12 months. This is on top of the penalties for failing to submit your tax return. A top tip is to pay an estimation of your tax due even where you have not yet had a chance to complete your tax return as this can hold off fines from building up steam.
As you can see, the faster you clean up the mess of missing the tax deadline, the better it’ll be for you financially or you could end up with a very nasty bill. If you find that dealing with your tax return is too difficult or overwhelming, then you could consider using an accountant to help you. Relying on professionals can be the most efficient way to get your tax return sorted quickly to prevent penalties from accumulating rapidly.
2. Get a head start on the toughest job
Next, our advice is that you may want to deal with the most unpleasant job first and as soon as possible. That way, it’s over and done with, you’ll feel accomplished, and everything that comes after will seem far easier. You’ll be much more relaxed knowing the biggest job has been done. In the case of your finances, most people find completing their self-assessment tax return the most arduous task. There’s a lot of collecting and tracking down paperwork, reviewing dates, and double-checking figures and calculations. What’s more, if you’re not familiar with the tax rules, it can mean either missing out on tax breaks or mistakenly claiming for tax relief or deductions when you’re not entitled to (leading to more troubles later).
Although all this sounds like plenty of convincing reasons to procrastinate and leave doing your tax return to another day, when you’re more mentally prepared to face it, did you know that there are benefits to completing your tax return early on in the tax year? There are very many practical and immediate advantages to getting your tax return done early, from receiving a tax refund faster to being able to apply for a mortgage. What’s more, once you’ve done your tax return, you’ll then know what your tax bill will be. The earlier you get started and find out; the more time you’ll have to make sure you’ve got enough saved to pay your bill. For example, if you complete your self-assessment tax return by the end of April, you’ll have a full 9 months to sort out your bill payment. However, if you leave it to later on, such as December, then you’ll find that you’ll only have a couple of months. In fact, the earliest you can submit your self-assessment tax return is 6 April, at the very start of the new tax year!
3. Organise your budget to make paying your tax bill easy
So, once you’ve cleaned up any mess and you’ve handled the hardest job, you can move onto organising your finances. Like organising your home, putting a system in place makes knowing where everything is much easier. The same is true for your finances. When you have an organised budget in place, you can relax, knowing that your tax bill will be easily accounted for by the time the deadline comes around.
To organise your budget, you should set yourself a clear goal. You’ll know what your goal should be because if you’ve completed step 2 and have done your self-assessment tax return, you would have calculated your tax liability for the year. Next, think about any planned expenditure that you may have coming up. This could be a planned holiday or even simply knowing that you’ll be spending a bit more towards Christmas. Once you’ve noted this, you can then consider your earnings to determine how much you’ll be able to put aside each month. Remember, it’s ok if you don’t meet your budget and savings goals each month – the important thing is to regularly review it and re-organise if needed.
To make things even easier, you can find out about the different ways you can spread out your tax bill payment throughout the year. Some methods are more flexible than others, whilst other routes can handle it all automatically for you such - as where your tax bill is less than £3,000 for the year and you choose to have it deducted each month through your pay from an employer. It means you won’t have to worry about missing the tax deadline for payment at all!
Spring cleaning may not be everyone’s favourite task, but I think we can all agree that it’s a rewarding feeling when it’s a job well done. What’s more, when you make a healthy habit of completing your self-assessment tax return early and managing your tax bill efficiently, you’ll find it can help boost your other financial goals as well! Whether you’d like to save more money, or explore options for potential investments, you’ll be far more successful in achieving those goals if you don’t brush your tax bill under the carpet until January.