And now, the penalty for filing your tax return too EARLY If you’re among the millions who file their own self-assessment tax returns you will understand me when I refer to the pleasant sensation of having done the job for the year.
Many people, including myself, are gearing up about now to complete the return for the year ending April 2015, which has to be filed by the end of January .
But here’s a salutary warning for anyone who is extra-organised: even if you complete your return far ahead of the deadline, don’t submit it too early – as there is a danger of unexpected consequences in your tax coding.
As a result, your monthly pay could be unexpectedly reduced.
Accountants Baker Tilly recently reported on just such a case.
A taxpayer filed his return for the year 2013 14 in mid-2014, well ahead of the January 31, 2015, deadline. Tax was due.
HMRC factored the underpaid tax into his code, and his PAYE income was thus adjusted. So far, so good.
This very organised individual, however, then completed and submitted his self-assessment return for the year 2014 15 in May this year – some eight months ahead of the deadline.
Again, tax was due.
The taxpayer’s efficiency in filing his return was matched by the efficiency of HMRC in contacting his employer: a new code was issued and as a result his pay was further reduced.
By filing so early this taxpayer was in effect paying two years’ worth of tax simultaneously.
Underpaid tax for the 2014 15 year was therefore being paid well ahead of the due date.
“A phone call corrected the matter, with HMRC agreeing to remove the 2014 15 underpayment so that just one year’s underpayment was being coded out,” said Gary Heynes of Baker Tilly.
But he pointed out, as Telegraph Money has frequently reported, how frustrating and difficult it was to contact HMRC about anything – let alone the potentially nightmarish complexities posed by tax coding.
“It seems if you file too early you risk a double hit on tax,” Mr Heynes said. “HMRC appears to operate on the basis of ‘if you shout, we’ll take it out’.”
In theory the coding system is an excellent way for employees to pay additional tax. In order for the tax to be coded, the sum owed needs to be less than £3,000 – and your self-assessment form needs to be in by December 31 (electronic filing) or October 31 (for paper returns).
Presumably by this stage of the year there’s enough landing on HMRC’s doorstep for it to take a few months to inform employers.
But paying via your code is only as good as the coding is accurate.
Unfortunately, HMRC has given taxpayers repeated grounds to mistrust its processes.
Tax codes, being difficult to understand, plant in many minds a suspicion that calculations may have gone awry.
Meanwhile, our groaning tax system is heaped with layer upon layer of further complexities.
An HMRC spokesman told me the default position was to issue new codes when new information is received – which includes self-assessment returns filed early. But you can specify over the phone when you would like the coding to apply, he said.
To my mind it’s simpler to file closer to the deadline and just pay.