Avoid overpaying tax. Just one of 9 reasons to complete your tax return early

According to new research, workers in the UK are overpaying more than ￡8.2 billion in tax, with 43% of people who have checked their tax code finding that they are on they are on the wrong one.[1]

71% of those people were overpaying tax – on average ￡694 per person, though one in seven were giving the tax man more than ￡1,000 than they should due to being on the wrong tax code. Just a fifth (20%) of those who were on the wrong tax code were underpaying,

Although around two-thirds of adults in the UK believe they are on the correct tax code, people, on average, only check their codes every couple of years. This is despite the fact that 38% reported seeing a change in their income tax in the last couple of months.

Many people don’t know how to reclaim overpaid tax, and feel uncomfortable with trying, as they aren’t clear about the process. This nervousness about claiming, combined with the infrequency with which people check their codes, means the tax man is ￡8.2 billion richer! [2]

How to ensure you’re paying the right amount of income tax

Understanding your tax code is the key to ensuring you’re paying the right amount of Income Tax. If you’re not on the correct code you may find yourself either out of pocket or paying too little tax, which can add up to problems later.

Although overpaying means you should get a rebate if you underpay you may find yourself having to pay HMRC a lump sum to make up the shortfall, which can come as an extremely unpleasant surprise.

Remember, though, that there are time limits to reclaiming overpaid Income Tax, which is four years from the end of the tax year in which you are trying to claim. There are a few exceptions to this – for example, if HMRC has made an official error – so if you think you may have overpaid, the earlier you contact HMRC, the better.

If you aren’t sure about your tax code, the simplest thing to do is to talk to your IFA or accountant, who can help you to check.

If you think you need to have your tax code corrected, you can call HMRC directly.

One way to make sure that you keep on top of your income tax and ensure your tax code is up-to-date is to file your tax return early, rather than waiting for the final deadline to file and pay your tax.

Many people find doing this daunting – just one of the reasons to put it off until the last minute, but getting yourself organised to complete your tax return early can pay off with a number of benefits.

9 reasons to file your tax return now

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1. Avoid penalties: The earlier you file your tax return, the less likely you are to miss the deadline for some unforeseen reason, and incur late filing penalties. With a late filing penalty starting at ￡100 and increasing if you are more than 6 months late filing, plus a late payment penalty and interest, this can add up quickly.

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1. Get your refund sooner: If you have overpaid and are due a tax refund, filing early means you’ll get your money back earlier. Then you can use your money for your benefit, perhaps by putting it towards making use of your ISA savings allowances, or paying off any debts.

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1. More time to pay: If you owe taxes, leaving your tax return until the last minute means you’ll have to file it and pay your taxes right away to avoid penalties and interest. Filing early gives you more time to budget and the opportunity to pay in instalments.

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1. Avoid errors: Rushing through your tax return makes it more likely that you’ll make a mistake, which can lead to delays in processing your return, or even leave you liable to pay penalties. Filing early gives you ample time to double-check your information and avoid potentially expensive errors.

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1. Minimise your tax liability by maximising deductions and credits: Filing early gives you more time to gather documentation and ensure you claim all the deductions and credits that you’re eligible for, and potentially reduce your tax bill.

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1. Plan for the future: Knowing your tax situation as soon as possible should allow you to budget and make informed decisions about your finances for the coming year, including retirement contributions, investment strategies and other financial planning.

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1. Beat the rush: If you use a tax adviser to help you complete and file your tax return, you’re more likely to get an appointment and receive their undivided attention if you do it early. Leave it until the last minute (along with everyone else) and you’ll probably find they are overwhelmed and may not be able to give you the level of service that they (and you) would like.

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1. Protect against identity theft: Filing your tax return early can reduce the risk of identity theft, as it leaves less time for criminals to file a fraudulent return in your name.

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1. Peace of mind: Filing your tax return early provides peace of mind. You’ll avoid the last-minute rush and reduce the stress associated with meeting deadlines, especially if your income comes from multiple sources. Knowing that it’s done for another year is a great feeling!

If understanding tax matters is something you find daunting or confusing, talking to an independent financial adviser (IFA) is a good place to start, especially if you have income from different sources or need advice about how to manage your investments or pension income in the most tax-efficient way.

At Talis IFA, we’ve spent over 30 years advising our clients about all aspects of their personal and business finances, and we specialise in giving straight-talking advice that helps our clients to make the most of the available opportunities to reduce their tax burden.

Click here to find a Talis IFA.