Don't miss the looming tax deadline

With only days to go to the deadline for filing paper tax returns, anyone who doesn’t get their forms in on time faces an automatic £100 fine for late filing.  October 31st is the deadline, but because this is a Sunday taxpayers will effectively have to get their forms to Her Majesty’s Revenue & Customs by Friday 29th.

About 2.6 million people filed paper Self Assessment returns last year, but one million missed the deadline and were fined £100 earning the taxman a useful windfall of £100 million.  On top of the £100 fine you can also be charged daily interest payments and a surcharge of 5% on any tax owed.

‘An estimated one million people are likely to submit a tax return for the 31st October paper-filing deadline,’ explains Francesca Lagerberg, head of tax at accountant Grant Thornton.  ‘If an individual prefers to submit a paper return, they must ensure their return is in on time or they will be subject to a late filing penalty of £100. Late partnership returns will also incur a £100 penalty for each partner and late trust and estate returns result in a £100 charge to the trust or estate.’

Second chance

There is a second chance – you can file online until January 31st 2011 and the tax man is keen to encourage us to do so. HMRC points out that online filing offers other advantages, such as automatically calculating tax and providing an immediate receipt for the return. Online Self Assessment filings are also processed faster, useful if you are due a rebate.

Around three-quarters of people required to file for Self Assessment, some 6.9 million taxpayers, already complete their return online. These include the self-employed, company directors, those with investment income or capital gains and people with an income from abroad.

If you miss the October 31st deadline for paper returns you will need to register as soon as possible to file online. It can take up to seven working days after registration before you receive the activation code which allows you to file online and you will need either your postcode or National Insurance number, plus your Unique Taxpayer Reference (UTR) number which can be found on correspondence from HMRC, or by contacting your local tax office.

Exceptions

The deadline for filing online falls earlier if you owe tax of less than £2,000 and you want HMRC to collect it by reducing your Pay As You Earn (PAYE) tax code next year. In this case you need to send your tax return online by 30th December instead. HMRC says it will try to amend your code number, but warns it's not always possible, and you may still have to make a lump sum tax payment instead by 31st January – which could stretch the finances after an expensive Christmas.

Lagerberg points out that, ‘there are a few cases where online tax returns cannot be made. In these cases the deadline by which the paper return must reach HMRC is 31st January. These are non-resident company tax returns, trustees of registered pension schemes and certain individuals where the relevant supplementary pages are not available online.’

Where a £100 penalty has been issued in respect of a late paper return, this can currently be reduced to nil if the taxpayer pays their tax liability in full to HMRC by 31st January 2011, although this is under review for future years.

Penalties pile up

If you don't send in your return on time HMRC will probably decide to estimate the tax due and request payment. This is called 'a determination' and is usually more than the actual tax owed as an inducement to make you send in the correct figures.   Because your tax payment will be late, you will also be charged interest on the estimated tax due. You can only overturn the estimate by sending in your completed tax return. You'll also have to pay a late filing penalty.

If you pay your tax late HMRC will charge interest from the date the tax was due until payment is received.  If you still haven't paid your balancing payment (due on the 31st January) by 28th February, you may be charged a 5% surcharge, on top of the amount you still owe. This is in addition to any interest penalties. If you still haven't paid all the tax due on 31st January by 31st July, you may be charged a second 5% surcharge on top of the amount you still owe.

New penalties were introduced by HMRC from 1st April 2010, the most important of which is penalties for inaccuracy. In each case the penalty is a percentage of the additional tax that is due or was under-declared, and you will still have to pay the additional tax and in some cases interest as well.