Short and sweet for today, as I write this we are fast approaching the tax return filing deadline for income tax in the UK.
The system of Self-Assessment means that taxpayers use the information of their taxable income for the year, including sole trader businesses, director remuneration, rental income and so on, and work out their own tax bills.
What always surprises me is how many people leave filing their tax returns to the last minute. I’m not talking about my clients (mostly!). There will always be those deadline dancers, as there are with every situation, but I’m talking tax payers at large in the UK.
Yesterday the BBC reported that there was an expected 12.2 million people that would need to file a tax return by 31st January 2022. As of 6th January, the numbers that had filed were sitting at only 6.5 million. That’s just a little over half of all people that had fulfilled their filing responsibility between 6th April and 6th January. With the remaining number required to file their return in the next 3 weeks.
That’s 5.7 million deadline dancers. This is a very real thing!
So, firstly, those of you that haven’t filed their tax return yet, you aren’t alone!
But back to my concern over this. I’m less bothered about the impact to HMRC. Maybe as an accountant I shouldn’t say that. But what I mean is that my thoughts are with my clients and potential clients.
Not filing is one thing, but those people that have three weeks left to file their returns without knowing what their numbers were for the tax year to 5th April 2021 have bigger problems, and they’re missing out huge on key information within their business.
Those people that don’t know their profits won’t know what their tax bill is going to be, which is also due for payment at the end of the month. (HMRC actually announced an extension to the filing deadline this year, thanks to Covid, but that’s besides the point).
Those people that don’t keep a track of what’s going on in their business as they go along won’t know what their income is with certainty, won’t know how much it costs to run their businesses, and won’t know where their future income will come from. And so much more. Keeping a track of the numbers gives you control and the confidence to know that you can make decisions with certainty.
So what’s the true cost of not knowing your numbers?
-Not being able to invest in systems/mentors/coaches because you don’t know if you can afford them. I mean sure, you could, but are you doing the right thing or leaving yourself short and spending future mortgage payments?
-Blindly accepting more work/clients/commitments than you can service fully because you come from a scarcity mindset and can’t say no (in case it’s the last person that approaches you for work, you know). Knowing your numbers is more than about the money. It means managing your time and ensuring you aren’t over-committing yourself. This leads to broken promises, frustrated clients and poor service levels, which can be completely avoided.
-Spending your tax liability because you don’t know what it is, or you don’t save for it as you earn the income. (cue huge panic and stress to ‘find’ a way to pay your tax bill in less than a month because you’ve left preparing your accounts until filing month too). Late payment of tax can incur penalties and interest so think carefully before using HMRC as an informal lender!
-Lost compound earnings because you focus on the wrong strategy, such as reducing debt instead of growing investments. Maybe you have money in the bank, but you don’t really know how to manage it or what to do with it. Maybe you know you’re doing well, and the tax bill ‘shouldn’t’ be a problem, but you don’t know just how well you’re doing. So you can’t make investment decisions or pension contribution decisions with confidence, and know that you won’t be left short. The true magic of compound earnings happens over a long period of time, as in years or investing and leaving your money where it’s safe. Starting with small, affordable amounts is where the habit begins. But without knowing your numbers, you don’t know what that looks like.
-The ultimate cost – and this is what would keep me awake at night – getting to 65 years of age and not being able to stop working because I haven’t thought about my long term future while I was making hay. And even when I wasn’t, because I didn’t squirrel just a small portion of my earnings away even when things weren’t as stable. By putting off getting to grips with your finance, how do you know that this won’t be you?
Hopefully this post will have given you something to think about, or raised questions for yourself. Drop me a line if anything has come up for you that you’d like to discuss.