?100 penalty for leaving it late

Millions of taxpayers are rushing to file their tax returns by January 31 to avoid the automatic £100 penalty on those who miss the deadline.

The Inland Revenue is becoming far tougher with late payers. More than 9m people were sent tax returns last year. By law, anyone who gets a tax return must send it back. But about 3.6m people have yet to file their form. People who owe no tax will not be fined - since, under Revenue rules, the fine cannot be larger than the tax due. But hundreds of thousands of people who do owe tax are likely to be fined £100.

Although filling in the form can take less than an hour, it can take days or weeks to collect the documents and information that support it. 'Leaving it to the last minute can be a problem,' says Jane Moore of the charity TaxAid, which gives free tax advice to people on low incomes (helpline: 020 7624 3768). You need to get statements of tax deducted on bank and building society accounts - or you can take the information from account statements if you have them. Similarly, you need information from your employer on gross taxable pay after pension payments and other figures which are included in the P60 and P11D forms.

Going through the form needs to be done carefully if you want to avoid overpaying. For instance, payments into an employer's occupational pension scheme do not need to be mentioned on the form (since your employer will reduce your gross pay figure by the amount of your pension contributions) but payments into a personal pension do need to be entered. If you do not have a tax adviser to help you, read the notes from the Revenue on completing the form, ring the Revenue helpline (0845 9000 444) or visit a tax office. Tax officials can be surprisingly helpful.

Many people preparing their tax returns now will also complete the tax calculation forms the Revenue sends out. But this is not necessary. If you find the calculation form too daunting, you can use your own methods - and ask the Revenue to do its own calculation. If your affairs are simple, your method could be far easier than the Revenue's.

For the self-employed who are in profit, there are two payments due on January 31: the balancing payment for the 2000/01 tax year and the first payment for 2001/02.

Last April, the Revenue handed debt management to its Receivables Management Service. 'If you are self-employed and owe £4,000 or £5,000, they will really hammer you now,' says tax adviser Richard Murphy. In the past, the Revenue often waited for the best part of a year before issuing a writ, but this move could now come in weeks. 'If you can't pay, you need to send in a schedule of what you can pay,' says Murphy.

· People who post their return through a tax office letterbox on February 1 have technically missed the deadline - but the Revenue has said it will not charge them a penalty.

Any self-employed income? There's relief to be had

Barristers, solicitors, consultants, freelance writers and other people with self-employed income have just a few weeks left to make extra pension contributions to take advantage of unused tax relief. Some of these taxpayers could get more than ?5,000 tax relief that would otherwise be lost to them.

But they must act before January 31. Until then, individuals will be able to make use of the 'carry forward' rules, which allow the self-employed to carry forward unused tax relief on pension contributions for six years, enabling them to make retrospective contributions when they have the spare cash to do so. But the government, despite its campaigns to encourage private pensions, is abolishing the carry forward regime from February.

In order to make these extra contributions, you need to look back on your payments into your personal pension in the tax years from 1994-95 onwards. If you paid less than the maximum in any of those years, you can make up the shortfall now. The maximum is decided by your age at the start of each tax year, your 'net relevant earnings' (generally speaking, your business profits less capital allowances) in those years and the level of the earnings cap in each year. For instance, in the current tax year, the earnings cap, which restricts the amount of earnings on which pension contributions can be made into personal pensions, is set at ?95,400. Someone aged 35 or younger can contribute 17.5% of net relevant earnings - a maximum of ?16,695 (17.5% of ?95,400).

To make use of carry forward, you have to go through another technical hoop with the Inland Revenue. You first have to make a 'carry back' election, in which you say that contributions paid in the current tax year should be treated as if they were paid in the last tax year of 2000-01. There is one further restriction on the amounts you can then pay under 'carry forward': your total pension contributions for 2000-01 cannot exceed your self-employed earnings in that year.

Donna Bradshaw of financial adviser Fiona Price & Partners is expecting a last-minute rush. 'If they don't do it, a lot of people will lose out,' she says. But she is keen to point out that holders of s226 annuity contracts (the pre-1988 precursor to personal pensions) will still be allowed to use the carry forward rules: 'High earners should hang on to their s226s.'

Many people using the carry forward provisions will be able to ask their tax advisers to sort out the issue. The process will be a more painful one for individuals doing it themselves, but assistance in understanding the procedure is available from the Inland Revenue at local offices- which can be surprisingly helpful - or on the Revenue's self-employed helpline (0845 9000 444).