How to pay more tax than you should

A third of the people getting ready to file their tax returns by the end of September will probably make a mistake. In many cases the mistake may never be discovered and they could end up paying more tax as a result.

Statistics from Her Majesty's Revenue and Customs (HMRC) - the merged government authority which replaced the Inland Revenue and Customs & Excise in April - show that 32 per cent of the 9 million or so tax returns sent in each year contain errors. Some of these errors are deliberate and fraudulent rather than being true errors, and HMRC will take a lot of care to track these down. But in many other cases the taxpayer will make a genuine error such as putting in the wrong figure. If this isn't spotted, they are likely to be landed with a bigger tax bill than they deserve.

Boring though it may sound, the advice has to be that taxpayers read the detailed guidance sent to them with tax returns before they complete the forms and that they should call one of the Revenue's helplines if they are still confused.

A report by the National Audit Office in June, 'Filing of Income Tax Self Assessment Returns', listed the five most common errors. These included two which would see the taxpayer overpaying: entering the net amount of additional voluntary contributions on pension payments (even though they are asked to put in the gross amount) and forgetting to put in the tax that has been deducted from their pay. While HMRC might pick up the second type of mistake, it is much less likely to spot the first.

Jane Moore of the Institute of Chartered Accountants in England and Wales explains: 'It depends on the nature of the mistakes. If something is clearly wrong, the Revenue will let the person know - particularly if you get the return in early. If it is not so obvious to the Revenue, you will simply pay the wrong amount of tax.'

About half the people sent tax returns get them back to HMRC by the end of September. HMRC can then calculate their tax liability in time for payment on 31 January. The other half file by 31 January or are late, risking a £100 fine. For people who file after September, HMRC can still calculate the tax due but it does not guarantee to do this in time for you to pay your bills. This could mean that taxpayers end up paying interest on late tax payments.

This year, HMRC is likely to telephone some young male taxpayers, new filers, people in the Construction Industry Scheme and some Londoners, to remind them to file by 31 January - they have been identified as most likely to be late.

More than £1 billion is thought to be outstanding in unpaid bills from one million unfiled tax returns at the moment. About 260,000 people are at least two tax returns behind, and 12,000 owe six returns or more. About 90 per cent of people file on time and the HMRC is aiming to increase this figure to 93 per cent in the next three years, partly by contacting potential laggards and partly by other methods.

Most people who miss the 31 January filing deadline do not have to pay a fine, even though, in theory, they get an automatic £100 fine. This is because the fine cannot be higher than the tax you owe and 60 per cent of late filers do not have any tax to pay.

More of us are going to start filing electronically. Only 17 per cent did this last year, but that is expected to rise to 35 per cent by 2008. One advantage is that your tax liability is calculated immediately for you.

Everyone filing a return will want to avoid the stress and strain of being picked out for closer scrutiny by HMRC.

Paul Falvey of accountant Grant Thornton expects to see more questions raised about the sale of buy-to-lets and other property transactions (except for the sale of one's own home, which does not feature on a tax return): 'If you have a capital gains tax liability, it is not unusual for the Revenue to want to know who you sold it to.' They would be looking, in particular, for sales at undervalue to family members or business partners.

If you have odd-looking figures appearing on your return, such as self-employed income which halves from one year to the next, you are well advised to give a concise explanation of the cause ('I took six months off,' or 'Business was poor because of...' for instance) in the bits of white space marked out on tax returns for exactly this purpose. By answering the questions before they are asked, you might be able to head off the possibility that your affairs will be selected for the time-consuming, stressful process of an investigation.

You can call the HMRC helpline on 0845 9000 444