You may need to complete a tax return and pay any tax owed by 31 January. Even if you honestly overlooked your return, there's a £100 fine!
Habitual Fool readers will know that I have something of a phobia for dealing with paperwork. This is probably because I belong to the `filing not piling' school of administration. Even worse, following a house move just before Christmas, my personal paperwork currently resides in half a dozen unpacked boxes.
Thus, you can understand why I am nervous as 31 January draws near, because this is the deadline for online submission of the dreaded SA100 form, alias my self-assessment tax return. (The deadline for paper returns was 31 October, so forget it.) Being a last-minute Larry, I always end up scrambling to complete my tax return and pay my tax bill before the 31st. Indeed, since the mid-Nineties, only once have I submitted my tax return early -- and this was to claim a substantial tax rebate!
Fines, interest and penalties
The bad news is that failure to submit your tax return and pay any tax owed by 31 January incurs an automatic fine of £100. To be strictly correct, the fine is the lesser of £100 or the tax due. So, if you owe less than £100 in tax, you won't incur a £100 fine.
If you're pretty sure you do owe more than £100 in tax, here's a sneaky tip: if you pay (or, for caution's sake, overpay) all the tax due on or before 31 January, then you will not be fined a penny. This is because you have paid the tax owed, even though you haven't submitted the form. This get-out clause has saved me on a few occasions when I've paid or overpaid my tax on time, yet my SA100 form arrived late.
However, if you don't pay all tax due, then the penalty-interest clock starts ticking. This is charged at a rate of 2.5% above base rate, which comes to a modest 4% a year at present. Alas, there is a further fine: if you don't pay your bill in full by 28 February, then a surcharge of 5% is added to your tax bill. The good news is that HM Revenue & Customs (HMRC) accepts various methods of payment, including debit and credit cards, so you can still pay online or by telephone right up until 31 January.
Do you need to complete a tax return?
Generally speaking, those people who need to complete a tax return usually receive one by post after 6 April, which is the start of each new tax year. So, HMRC sent out tax returns for the 2007/08 tax year in April 2008. However, if you owe any tax which has not already been collected, then it is your responsibility to complete an SA100 form and pay the amount due. Honest ignorance is no excuse -- you are still liable, even if you never received a form.
Most taxpayers know from experience whether or not they owe any tax which has not already been collected at source or via PAYE (Pay As You Earn). For the record, you may need to complete a tax return if you fall into one or more of the following categories:
- you are self-employed or in partnership;
- you are a company director;
- you are an employee or pensioner with complex tax affairs;
- you receive income from UK property or land;
- you receive other unearned or untaxed income on which tax cannot be collected via PAYE;
- you receive taxable foreign income;
- you receive income from a trust or settlement on which further tax is due; and
- you receive any other income which is not taxed at source.
For example, as a freelance writer with my own private limited company, I fall into several of the above categories, so I always complete a tax return. Other people likely to complete a tax return are high earners (those liable to higher-rate tax, earning over £41,000), landlords and those who make substantial gains or income from investments (other than in tax shelters such as ISAs and PEPs).
My income consists of my basic salary, share dividends, savings interest, appearance and broadcasting fees, book royalties and so on, so my tax affairs are pretty complicated. On the other hand, although my wife's tax affairs are much simpler, she has completed and returned a SA100 early for at least ten years in a row. On almost every occasion, she has received a prompt tax refund!
First-timers
There are a number of situations which could lead to you having to complete a tax return for the first time. For example, your income may have jumped significantly, putting you into a higher tax bracket. Likewise, a large windfall or inheritance may come with tax issues attached.
Alternatively, with house sales plummeting, you may have taken your home off the market and started letting it instead. All `reluctant landlords' in this position must declare rent and allowable expenses via a tax return, even if they make a loss. On the other hand, you may have sold a second property (not your main home), shares or other assets and owe Capital Gains Tax (CGT) on any profit realised. Given the disastrous performance of the stock market in 2008, CGT may not be an issue in the current (2008/09) tax year!
In summary, although tax can be somewhat taxing, a common-sense approach usually works most of the time. Thus, if you suspect that you owe any tax on income or gains, then play it safe by completing a tax return. Otherwise, you could be in for a ticking off from the taxman!
More: Find splendid savings accounts | Top Tax Return Tips | HRMC website