As a rule of thumb, once the Christmas Day lunch conversation strays onto politics, sex or religion, you can kiss familial harmony goodbye.
But I think we can add a fourth topic to that list. Unless your family is populated with Her Majesty’s Revenue & Customs (HMRC) inspectors, or a festive game of Scrabble turns it up as a killer ‘triple word’ opportunity, ‘tax’ is also guaranteed to kill seasonal good cheer.
The final deadline for tax returns looms near
So it’s a shame that a critical deadline lurks just on the other side of Christmas. Anyone who submitted a paper or online self-assessment tax return by 31 October – or the shortened version called a P810 (T) for higher rate taxpayers with simple tax affairs – can relax knowing that HMRC are obliged to work out the tax due and in many cases will have already done so.
But for the rest of us there’s work to be done. That’s because the final deadline for submission of your 07/08 return – covering the period from 6 April 2007 to 5 April 2008 – is 31 January 2009. And what’s more it needs to be done online. Anyone who misses that date faces the prospect of having their Christmas bills bumped up by a £100 fine plus interest on an HMRC estimate of the amount of tax outstanding. According to the Institute of Chartered Accountants 1.7m filing notices were issued last year.
That’s a lot of money down the drain, often because people simply forgot about the deadline or didn’t get organised far enough ahead of it. So, here are some top tips to help smooth a rather tedious process.
Completing your tax return
First, get organised as soon as possible. You can check whether you need to send in a self-assessment return. In short, if you receive income on top of a salary (Pay As You Earn tax deals with your day job) you probably do.
If you have never completed a tax return before, watch out for windfalls which might mean you now should. Examples include large inheritances, selling a second property, selling shares and giving assets away. So if, say a father gifts a holiday home to a son, there may well be a capital gains tax bill to settle even if the property is given away for nothing. If in doubt, check with a tax adviser or phone HMRC direct – 0845 60 55 999. All of that can take some time, even more reason to start soon.
Then, register for the online tax return service. This takes a bit of time as you need to apply for your user ID and password if you are a first time user – so do it now if you haven’t already. Existing users can simply re-enter the site using their existing ID.
The next priority is to gather together all of the information you’ll need to fill in the form. None of it needs to be physically posted anywhere but records that support your figures must be kept for 22 months after the end of the tax year, or five years and 10 months if you carry on a business or receive income from letting out property. There is a maximum fine of £3,000 for each year that records are not kept.
The paperwork
So what sort of paperwork do you need? The answer depends on the complexity of your tax affairs, but, as a minimum, employees need a P11D (summarising taxable benefits such as medical cover), P60 (detailing the income earned and tax paid for the year) and/or P45 (the equivalent issued if and when you leave an employer.
Then check whether you’ve received an interest summary from any banks or building societies you hold accounts with. These can often be viewed online if you’ve lost the original. This will also show how much tax has been deducted, information you’ll need for the return. Indeed you’ll need to have documentation to support any non-payroll income, whether from dividends, renting out property or received from family trusts.
Claiming back tax
If you plan to claim tax back on expenses such as professional fees, again make sure you know how much you spent – bear in mind that the tax year you are worrying about in all cases ran from 6 April 2007 to 5 April 2008. Above all don’t forget to claim your full tax relief on personal pension contributions. You do this by filling the gross amount of your contributions for the year in the relevant box.
It’s also well worth looking back at last year’s return to ensure you have not missed any obvious items of income or expenditure this time around.
Finally once you’ve submitted the return, keep a copy along with any records you may have used. That way you’ll be able to deal with any follow-up queries with minimum fuss. Good luck!
This is the last MoneySense of the year – have a great Christmas and New Year – and we’ll be back on Tuesday 6 January.
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