FOOL'S EYE VIEW
Don't Fear The Taxman

By Stuart Watson (TMFTiger)
January 15, 2002

Great Titchfield Street, London-- Few things in life are less pleasurable than filling in your tax return. Getting your teeth extracted by your mother-in-law whilst watching the National Lottery Jet Set might rank a little lower but it's a close call. Unfortunately whilst you can sidestep your mother-in-law and maybe even deftly change the channel at the same time, around 9m of us can't escape the requirement to fill in a tax return.

One of the key dates in the tax year is approaching fast. By 31 January 2002 you need to have done the following:

- Submitted your completed tax return for 2000-01 having worked out how much tax you think you have to pay;

- Submitted a cheque for any remaining tax you have left to pay for 2000-01; and

- Made the first of two payments on account for your estimated tax liability for 2002-03.

If you miss the 31 January cut-off point you will incur a £100 penalty and interest will start accruing on whatever tax you should have paid. Additional 5% surcharges kick in on 28 February and 31 July (plus another £100 penalty) if you still haven't paid by then. Ouch, ouch and double-ouch.

The Tax Return

It is much simpler to let the Inland Revenue do the tax payment calculations for you. Unfortunately, you need to have submitted your form by 30 September 2001 for this to happen. If you haven't done that make a note to do it for the next set of forms. The mental image of the mother-in-law clutching a pair of pliers should do the trick.

Apart from the fact that you save yourself both time and teeth you may also get additional benefits by submitting your form before 30 September. If you have less than £1,000 of extra tax to pay this can be collected via the PAYE system by an alteration of your tax code. This gives you a small cash flow advantage and saves you the bother of having to do anything else because this is done automatically. If you are due a repayment you'll also get this quicker by submitting your form earlier. You won't have to pay extra tax any earlier though, if you submit your forms early. Naturally, the Revenue set the system up to encourage early submission and there is little reason for waiting until the final 31 January deadline.

For some tips on completing your form try this article and this follow-up piece. This article on the BBC site also has some useful hints. Many people will have sold shares at a loss in the last couple of years. Don't forget to include these as you may be able to set them against gains in future years. Remember even though you may not have received a form you may still need to complete one. It's your responsibility to chase this up unfortunately.

Don't worry if you can't find all the necessary information to complete your form now. You can put in estimates, as long as you note that the figures are estimates. Photocopy the form if you can. It makes it a lot simpler to complete next year's form if you have something to compare it against. And don't forget to sign the form. This is the most common reason why the Inland Revenue rejects them.

Calculating Your Tax

If you thought the basic tax return was complicated wait until you see the forms you have to fill for calculating the tax due. If your affairs are relatively simple you can get away with the 'simple' 15-page form. If they are more complex, it's the monster 30-page version for you I'm afraid. However, the extensive numbering on the form and references guides are a great help in leading you through the whole process. Overall the Revenue does a pretty good job of making the things easier given the insanely complex UK tax system. It's not their fault they were dealt a bad hand.

Payments On Account

If you end up paying a significant amount of extra tax each year, because it is not fully taxed at source for example, then the Revenue may insist you make payments of account for the current tax year (i.e. 2001-02). These payments are due in two equal size lumps. One by 31 January 2002. The other by 31 July 2002. Cruel world isn't it. It could be that you have received all the extra income by then so you are effectively paying tax in advance.

The estimates are based on your tax liability for 2000-01, which you've just calculated. You can apply to have this reduced if you think your income is going to be lower. However, if it turns out you've underestimated your income, interest will accrue on the amounts you should have paid. If you think your income is going to be higher next year though, you don't need to pay any extra on account.

If you have sent in your tax form already then you've probably already received a payment slip reminding what you need to pay, if anything, by 31 January.

Help!

Of course you can pay an accountant to do all the hard work for you. This will cost from a few to several hundred pounds, depending on how complex your situation is. For most people, with a simple form to fill out, this is an expensive luxury. But you pays your money and takes your choice.

Later on this year though even more help will be at hand. The next TMF book to hit the shelves is the Tax Survival Workbook. It's due out this summer. Written by the legendary TMFJimmyC (well that's what he calls himself) this will mean when it comes to doing your next lot of tax forms you'll have no excuses.

More: TMF tax centre | Self Assessment web site