Completing your self-assessment tax form

HMRC website viewed on a smart-phone
Image caption More than six million people used the online system last year

The deadline has come around again - the final date for filing self-assessment tax returns, and also paying any tax liability.

This is the third year that we have had the new filing deadlines from the taxman.

For those who have still not filed, it is a process similar to that of a visit to the dentist - where you just cannot put it off any longer, and where there could well be some discomfort.

So it is worth re-emphasising that these end of January self-assessment deadlines are "twin track", with one set of deadlines for the tax return and another for the tax payments.

There are now two separate deadlines for the tax return: one for the paper return and the other for electronic filing.

For paper filing for the tax year that ended on 5 April 2010 (the 2009-10 financial year), the deadline was 31 October 2010.

If you have missed the 31 October paper filing deadline then you can only file electronically, there is no paper alternative.

Electronic filing

There were two reasons why a later deadline of 31 January for electronic filing was set, encouraging people to switch away from paper filing.

The first was that, with paper filing, HM Revenue & Customs (HMRC) had to deploy its employees to input the tax return information into their computer systems.

During a time of staff reductions in the organisation this was a burden that they wanted to reduce.

The second was that the Revenue wanted to receive clean data, because tax information from the paper returns inputted by staff was more susceptible to human error.

Getting online

You can only start the online filing process by having a Pin code.

If you have filed online in previous years you will already have a Pin, so there is no excuse and you can get started straight away.

HMRC sent out Pin codes to many taxpayers a few years ago and you may well have kept it.

If you are new to self-assessment, or have forgotten your Pin, you will need to go to the Revenue website and register.

The location for this is under the smiling picture of Moira Stewart, as it was last year.

It is a fairly straightforward process, but you need to be aware that the Pin code will be sent to you by post.

HMRC advises that you should allow seven days for this to arrive, so the sooner you apply the better.

The electronic tax return

Turning now to the tax return preparation itself, the whole process is actually quite similar to that of completing the paper return.

First off, set aside plenty of time to devote to the return.

There is nothing worse than starting and then being disturbed and having to go and do something else.

Before you start working on your tax return, make sure you have all your usual source material at the ready.

This will include:

  • Your P60 form - you must enter the precise figure for your income and not just a rounded approximation or "ball park" figure
  • Specific details of self-employment income, together with receipts and invoices for items you consider deductible from this income
  • Details of any freelance income which is in addition to your employment income
  • All bank and building society interest details
  • Details of any dividends.

Paying the tax

You will also need to pay any tax you owe.

Under the twin track deadlines I mentioned earlier, the 31 January is also a payment deadline.

Image caption The Revenue wants people to move away from paper filing

If the electronic tax return was filed by 30 December 2010, and if the tax due was below £2,000, then the Revenue will take payment for the tax owed.

They will deduct the money, month by month, from your income during the next tax year 2011-12, by adjusting your PAYE coding.

But as we are looking at filing the return in January, the full and final tax payment will need to accompany the tax return.

If you have been within the self-assessment regime for a number of years and usually owe tax of more than £2,000, then you are likely to be within the payments regime too.

This means that you will make a payment on account within the tax year on 31 January.

So, for the tax year 2009-10, a payment on account was required on 31 January 2010.

A second payment on account was then required on 31 July 2010.

And you will now be required to pay the final amount on 31 January 2011, together with the payment on account for the tax year 2010-11.

Payment methods

It is worth noting that there are many ways to pay the tax these days, it is not purely a matter of sending in a cheque.

You can pay by direct debit, you can set up a budget account to accumulate the cash over the year for the amount you need to pay, and you can also pay by credit card.

But paying by credit card incurs a 1.25% fee and two types of cards are not accepted, so check on-line.

HMRC publishes a guide on how to pay.

Late return penalties

As the tax return and the tax payment follow their own requirements and rules, then so too does the late penalties regime.

A late tax return penalty is £100. This is automatic and is issued by the HMRC computer.

You also need to note that the penalties for the 2010-11 returns which are filed after October 2011 are likely to be different and potentially far more expensive.

I will not set out the details of those in this article as it may cause unnecessary confusion and should not apply to your current filing.

But it is something to be aware of if you are someone who keeps missing the deadline.

A penalty for the late payment of the tax will apply from 28 February and is 5% of the tax unpaid.

However, interest will also be payable on non-payments or under-payments of tax from 1 February and interest is also payable on the penalty itself.

The rate currently applying is 3%.

Reasonable excuse?

If for any reason you are unable to file your tax return on line by the 31 January then you may still have the chance to claim there was a reasonable excuse, and persuade the Revenue to extinguish the £100 penalty.

There is a dedicated form on the HMRC website which enables you to put forward your reasonable excuse.

What if you received the paper tax return but have not got around to sending it in?

And you have not contacted the banks, building societies and others who need to provide you with information to complete your tax return?

You should still press on now and register for online filing, as mentioned above.

Even if you are late filing and do incur the £100 penalty you must work towards getting your tax return in as soon as possible.

Otherwise the Revenue will pursue you for it and you could end up paying much higher penalties in the long term.

Extra time

If you are under self-assessment and think you may not be able to pay your tax liability then you should take note that help is at hand.

At the end of 2008 HMRC set up the business payment support service.

The service is available to both businesses and individuals and the details are available from the Revenue website.

One telephone call to the support service should allow you to defer paying your tax liability on the due date.

However, you need to be considered viable.

That is, you are not likely to fold as a business, and HMRC can be confident that they will receive their tax in due course.

While the government seems less keen to allow this support to be used, as it is not positioned prominently on the Revenue website any longer, it is still available.

By having your tax payments deferred by the payment support service you will escape the imposition of the 5% tax penalty surcharge.

But in order for you to take advantage of this assistance from the taxman, your tax return needs to be filed.

There really is no avoiding the system, so my advice is to embrace it, get organised and seek advice from a chartered certified accountant if you feel flummoxed by the details.

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