Page last updated at 23:13 GMT, Tuesday, 6 October 2009 00:13 UK

Dealing with tax self-assessment

Money Talk
By Chas Roy-Chowdhury
ACCA

Reading a tax return
Time to fill in your tax forms again, unless you file online next January

The summer is over and the self-assessment deadline for the paper tax return is nearly upon us.

This year is the second with the new and final deadline for paper filing of 31 October.

Most people are still filing paper tax returns, hence this is an important deadline.

There is no second deadline for filing paper returns after this date.

If you miss it you will either need to file electronically, or suffer a £100 late filing penalty.

If you do file on time then HM Revenue & Customs (HMRC) will work out your tax liability for you and adjust your tax coding, or notify you of your tax liability in time for your final 31 January payment deadline.

The change in the filing date for paper filing, to make it earlier than before - and earlier than internet filing - is in order to encourage online submission and hence to reduce the HMRC's costs.

But it is also in order to obtain clean data directly from the tax payer and get it into the HMRC system, thus minimising the risk of human error in the transposition of data by HMRC staff.

This year especially I would strongly recommend that if you need to file a paper return you get your skates on.

The reason for this is that if you start completing your tax return you may suddenly find that you need to download extra pages, or you may make a mistake and wish to replace the page.

You should be able to download the pages from the HMRC website.

But below I have mentioned the situation where some forms are not available online, in which case you may need to take further action.

The standard tax return

To the extent that there actually is such a thing as a standard return, or even a more complex return, the procedure you should follow is the same.

Once you have all these bits of paper you should be ready to complete your return

Firstly, ensure that all the pages you require are there.

For most people HMRC are fairly well-rehearsed at sending out the correct supplementary pages.

Therefore unless you have any new sources of income, or a greater number of sources to disclose for your return, then the pages will be the same as the previous year's and you will have what you need.

The next step is to ensure that all your documents are there for each source of income and expenditure.

Where you have self-employment income, this will be your bank statements and invoices.

For employment income, that is income subject to PAYE, you will need your P60, P45 and P11D.

For dividends and interest, ensure that you have your statements from the broker, banks and building societies.

Make sure you also have all your information to hand on such areas as personal pension contributions.

Once you have all these bits of paper you should be ready to complete your return.

Postal strikes

I would suggest that you allow sufficient time in the first place so that the sporadic postal strike occurring around the country does not delay your return.

Chas Roy-Chowdhury
Chas Roy-Chowdhury

Where however you are affected by the strikes, and your return ends up being delayed, you will receive an automatic £100 penalty notice for late filing.

HMRC cannot easily stop these even if they know there is a good reason for their receiving a return late.

The fact that you have posted the return before the filing deadline is the important issue and you should appeal, saying that it must have been delayed due to the postal strikes.

HMRC will almost certainly then cancel the £100 penalty notice.

New to self-assessment

It is easy to assume that all those people who are meant to complete the tax return already have it.

Filling in tax returns this year might be as easy as it gets for a while

But the reality is that self-assessment is a dynamic environment, where new taxpayers join the club and others leave.

When do you join the club?

The rule of thumb is that if you are a 40% taxpayer or you have any form of untaxed income e.g. from freelance work, being self-employed, or an offshore bank account, then you should complete a return.

So, if you have not been contacted already by the HMRC, call their income tax helpline and ask for a form.

Once you have requested it, and then sent the completed form back, you may well find that in future years you will be taken back out of the self-assessment system.

HMRC takes the view that those earning below £100,000 a year, receiving savings income below £10,000, or untaxed income below £2,500, do not need to complete the full return, and in many cases no return at all.

Complication

Many people who have been taken out of the self-assessment net still receive a single sheet, two-page, return either every year or once every three or so years - form P810(T).

This year though, due to a new PAYE computer system having been installed at HMRC, these forms have not been sent out at all, and their future is currently being considered.

Those people who have contacted the HMRC income tax helpline to request one of these forms will have been told almost anything, other than the correct reason why they have not received the form.

What you should consider doing, where your income position is different from the previous year - and that is almost everyone who has previously received one of these forms - is to send in a letter setting out your income as per your P60.

This would include interest, dividend and untaxed earnings details, as well as any other items which need to be taxed such as capital gains.

The reason for sending these tax details to HMRC is because in the tax year 2008/09, interest income and dividend receipts have declined significantly for many people.

Therefore unless your tax coding is appropriately adjusted you may find yourself paying too much tax.

Despite all this, in some ways I would say that filling in tax returns this year might be as easy as it gets for a while.

That is because next year we have a new 50% rate of income tax, pension contribution restrictions, and personal allowance restrictions, as well as any other changes a post-general election government might bring in.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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