Why tax returns need to be submitted early

Accountant’s Clinic.

Minimise your annual tax hassles by dealing with things early and enabling your accountant to help with some useful planning. Julia Burn has some tips for the upcoming tax season.

It is the time of the year again when taxpayers should really start thinking about their personal taxes and their tax submissions. 

The last tax year ended on 5 April 2022 and personal tax returns for this year are becoming due by 31 October 2022, if filed on paper, and 31 January 2023, if filed electronically. 

Any balancing tax payments for the year must be made by 31 January 2023 and payments on account for the following year 2022-23 by 31 January 2023 and 31 July 2023.

As we continue to emerge from the Covid-19 pandemic, the tax world also returns to normality. In the previous two years, HM Revenue and Customs (HMRC) allowed taxpayers to file returns and pay taxes later to help struggling businesses and individuals. These breaks are no longer available. 

Estimating your tax liability

Many taxpayers, including doctors, took advantage of HMRC’s schemes to assist them with paying off their past tax liabilities. For some, part of those liabilities may still be in the process of being repaid to the Exchequer.

With current tax liabilities becoming due on 31 January 2023, this may cause a strain for some taxpayers. HMRC has discretion to allow further payment plans, but that is completely up to its officials. 

Any late payments for 2021-22 and payments on account for 2022-23 will incur late payment interest, and balancing payments due post 2 March 2023 will result in automatic 5% penalties if no new payment plans are agreed.

Cash flow planning for your tax bill is important and you may wish to consider submitting your 2021-22 return early to give yourself adequate time to plan. Your accountant will be able to calculate how much you should save each month to generate enough funds by 31 January. 

If your tax return for 2021-22 is submitted by 30 December 2022, your tax liability is less than £3,000 and you pay tax under PAYE, you will be able to elect for this to be coded out.

This means your liability will be spread out over the tax year and collected with the PAYE tax, so no physical payment will then be required by 31 January 2023. 

Inquiry windows

HMRC audits several returns every year to check they have been completed correctly. 

As long as all relevant information is provided and no details are omitted, HMRC has 12 months from the date of the submission of a return to inquire into it – otherwise, it could go back as far as 20 years. 

If a return is submitted late, this window for HMRC extends to the anniversary of the end of the quarter following the submission date.

The sooner your return is submitted, the sooner the inquiry window closes. 

Pension annual allowance charges

Medical practitioners are often members of defined benefit pension schemes. These schemes are extremely valuable, as the pension payments on retirement are based on their final salaries. While this means attractive future pension benefits, it can result in tax charges for breaching the pension annual allowance.

Taxpayers are allowed to contribute up to 100% of their relevant earnings if their earnings are lower than £3,600 a year. But the amount contributed should not exceed the annual allowance – and any unused brought forward annual allowances from the previous three tax years. 

The standard annual allowance is currently £40,000, but this gets tapered for higher earners who earn in excess of £200,000, with the minimum annual allowance being £4,000. Otherwise, any excess contributions will be subject to a tax charge at your marginal rate of tax. 

It is harder to monitor the contributions in a defined benefit scheme, as it is not clear how much your pension fund increases by until NHS Pensions issues your annual statement, usually around October following the end of the tax year. Medical practitioners often exceed their annual allowances without knowing.

NHS Pensions may pay your annual allowance charge as long as an appropriate election is made by 31 July following the year in which the charge arises. You need to ensure that any annual allowance charges are reported in your tax returns. 

HMRC has published a pension annual allowance calculator and you can find this at www.tax.service.gov.uk/pension-annual-allowance-calculator/tax-year-selection. On the opening page, you have to select the years you were a member of a registered pension scheme.

Superannuation returns

Once your 2021-22 tax return has been submitted, you may also need to file your superannuation return to report the superannuation contributions made by you and any employer.

The superannuation returns for 2021-22 are due for filing by 28 February 2023. As they can only be filed once your personal tax return for 2021-22 has been finalised, you may wish to consider filing your return in good time before the deadline to allow plenty of time for these complex calculations. 

These tax rules are complex and we recommend that you speak to your accountant regarding all of the above.

In conclusion, we would recommend that you attend to your personal tax affairs sooner rather than later, as this will allow you and your accountant more time for any tax planning.

And it will reduce the risk of any surprising last-minute tax liabilities. 

Julia Burn (right) is a director at Blick Rothenberg and part of the team that advises medical practitioners