FOOL'S EYE VIEW
Don't Miss Those Tax Deadlines

By Stephen Bland (TMFPyad)
January 22, 2001

31 January marks two memorable occasions in the tax calendar.

First of all, it is the deadline by which tax returns for the tax year ended on the previous 5 April have to be submitted to the Inland Revenue. Secondly, it is the payment date for any tax outstanding from that same tax year. Additionally, for those that have to make payments on account of tax due for the next tax year, then 50% of such amount is due by this date as well. Thus the end of this month on Wednesday 31 January is the relevant date for the tax year ended 5 April 2000.

31 January is just over a week away so make sure you don't miss any deadlines that apply to you otherwise you could incur a fine.

Penalties

The penalty for the late submission of a tax return is the lesser of £100 or the amount of any unpaid tax. So if no tax is due, perhaps a refund arises, then no late return penalty is levied. It follows that if you have a tax liability, then provided you actually pay this by 31 January no penalty will arise where the return is submitted late, because no tax is owed.

Apart from the late return penalty, interest is charged on any unpaid tax. And if by the end of February the tax is still not settled in full, a 5% surcharge is levied on top of the interest that will be accruing.

A further penalty for a late return, where applicable as described above, is charged where it is still not filed by 31 July.

Self-Employed

I referred to certain taxpayers who not only have tax to pay in respect of the previous tax year, but are required to make provisional instalments on account of the next one too. These will be people where the tax due exceeds £500 and less than 80% of their liability was already settled by tax deducted at source. Typically this will include the majority of self-employed individuals but will exclude most people whose income is derived largely from salary taxed under PAYE plus taxed investment income.

Where payments on account are required, the rule is that they are equal to the previous year's tax and paid in two instalments on 31 January and 31 July. Thus, for example, anybody in this situation filing a 1999/00 return now, would have to make payments on account for 2000/01. When the return for the latter year is filed, the tax due is compared with the payments on account and an over or under payment arises. An overpayment will be refunded and an underpayment is due the following 31 January.

Note that taxpayers have the right to file a claim with the Inland Revenue to reduce payments on account. Reasons have to be given but it is not a bargaining process, they will accept the claim. The most common reasons arise with self-employed people where they know that their profits will be reduced in the following year but there are also many other situations where a valid claim may be made. The downside is that any understatement of the payments due to the claim will lead to interest being charged from the original dates of payment. Lack of funds is not a valid reason to file a claim to reduce.

Finally note that capital gains tax does not form part of the requirement to calculate a payment on account for the following year. Only income tax has this effect. So whatever Capital Gains Tax liability you may have for 1999/00, payable by 31 January 2001, it would not require a payment on account for 2000/01.

Summing Up

In conclusion, the message is that if you owe tax, you need to file the return by 31 January to avoid the penalty and actually make the payment by that date to avoid interest charges. As an emergency measure though, provided you pay the tax by that date, then the late return penalty will not be levied.

Where next?

The All New Motley Fool Taxes Centre
Taxes Discussion Board
Inland Revenue Website