Now it's time to tax yourself

Send in your tax return on time or risk a thorough probe into your financial affairs, the Inland Revenue warned this week. If you are considered a celebrity, the disclosure that Revenue staff have been found rifling through the tax files of famous individuals and selling their secrets, may already have put you on alert.

But for anyone else, with the January 31 deadline less than two weeks away, the Revenue says taxpayers who fail to return their self-assessment forms and pay the tax they owe for the 2001-02 tax year face penalties and interest charges and the increased possibility of an investigation.

Some tax advisers say they have already spotted a "get tough" attitude by the Revenue that should be heeded by taxpayers who want to avoid any extra costs..

While gradually increasing numbers of people are filing and paying on time (90% last year rising to an expected 91% this year), some 800,000-plus people have still not taken this message on board.

"The Revenue is taking enough money off you already in tax, so don't run the risk of having to give them any more," says John Whiting of the Chartered Institute of Taxation and tax partner with accountants PricewaterhouseCoopers.

A Revenue spokesperson this week confirmed that, "the likelihood of being taken up for inquiry does increase if you file your return after January 31." And becoming the subject of a Revenue inquiry, where you are effectively guilty until you can prove yourself innocent by producing all the documentation required to verify your figures and tax calculations, is to be avoided.

But he dismissed claims that the Revenue plans to crack down harder on taxpayers who fail to file their returns and pay their tax owing by the January 31 deadline and denied any plans to make more use of its existing, but rarely used, power to impose draconian penalties of up to £60 a day on late filers.

"We have no intention of getting tougher this year," he said. "We are pragmatic and realistic about people who make genuine mistakes and those who do not deliberately fail to get their returns and payments in on time. In the past we have used the power to impose extra penalties only very rarely in cases where people insist on not submitting their tax return and where we consider that the normal penalty process is not going to produce that return. And we don't intend to use that power any more frequently in the future."

An automatic penalty of £100 will be imposed if you fail to get your return in on time. This year, the absolute cut off point will be Sunday February 2 when tax offices will check their post boxes. "Anything that arrives in those boxes after they've been cleared on February 2 will incur the £100 penalty," says the Revenue. And you'll incur a second automatic £100 penalty if you still haven't filed by July 31.

Any tax owing for 2001-02 is due to be paid by January 31 and many self-employed people also have to make "payments on account" towards their 2002-03 tax bills by this date. If you fail to make these payments on time, you will immediately be charged interest at the relatively high rate of 6.5%, calculated daily, on the outstanding amount due.

On top of that, if you haven't paid the tax you owe by February 28, you will suffer an automatic 5% surcharge on the outstanding tax for 2001-02 (not including the interest accrued) - that's £500 on a tax bill of £10,000, for example. And if you still haven't coughed up by July 31, you will be hit by another automatic 5% surcharge on the outstanding amount.

"Don't just think in terms of the £100-plus bit of interest you'll lose if you miss filing by a few days and are a bit late with your tax payment," says Mr Whiting. "Much more significant for many people is the February 28 late payment dead line when the 5% surcharge kicks in. If you miss this and keep a large balance of tax outstanding, the penalties, surcharges and interest soon add up."

Mr Whiting advises anyone who can't afford to pay their outstanding tax bill to discuss it quickly with the Revenue. "They are genuinely helpful nowadays and not interested in, for example, putting self-employed people out of business - they would much rather get their money in the end."

· Take a break before it's too late

January 31 is also the deadline for taking advantage of overlooked tax breaks. Higher rate taxpayers must claim back the tax relief on their charitable donations made using Gift Aid, which works out at 28p for every £1 given.

Gift Aid can also be backdated to April 2000, so if you want Gift Aid to apply to your past donations, all you have to do is contact your favourite charity and complete a simple declaration.

It is also possible to carry back a pension contribution into the previous tax year and claim the unused tax relief.

Carry-back pension tax relief is available to anyone who was eligible to contribute to a personal pension/stakeholder in the preceding year, whether employed, self-employed, non-employed, retired or even a minor. It allows a contribution paid in one tax year to be treated for tax purposes as having been paid in the previous tax year.

Andy Agar, pensions marketing director at Legal & General, says: "Put simply, carry-back allows people to treat pension contributions paid between April 5 2002 and January 31 2003 as if they had been paid in the 2001/2002 tax year and claim their unused tax relief for that tax year."

You might want to use carry back if you missed making a contribution to your personal pension during the past tax year, you can catch up and claim the unused tax relief by making one now - before the January 31 deadline.

Carry-back may also appeal if you can get more tax relief against your income last tax year than you can this year. If, for example, you were a higher rate taxpayer in 2001/02 but are likely to be a basic rate taxpayer in 2002/03, you can carry back a pension contribution made now into the 2001/2002 tax year and claim tax relief at the higher rate.

But you must act by January 31, after which the opportunity will disappear. This means making a pension contribution now by contacting your financial adviser or pension provider who will provide the right paperwork to satisfy Inland Revenue requirements and see that the payment is processed by January 31.

You cannot ask to carry back a contribution if it has already been made. You have to make the election to carry back at the time you make the contribution by completing form PP43, available from the provider or the Revenue.

All payments by individuals into personal pension plans are made net of basic rate (22%) tax relief, but higher rate taxpayers can deduct a further 18% of the gross contribution when calculating their tax liability - important for those who have yet to complete their self-assessment tax forms and therefore have to calculate their own tax bills by January 31.

· Get online if you need help with the figures

If you've left it until now to complete and file your tax return, you will be responsible for calculating your own tax liability for 2001-02. The Revenue will only calculate your tax for you and guarantee to tell you what to pay before the January payment deadline if you'd sent back your completed return by September 30 last year.

But some help is at hand in the form of an online personal tax calculator featured on the website of Sedgwick Independent Financial Consultants. Access it by clicking on the calculator image at www.sedgwickifc.com. The calculator asks you to enter figures for your earned income, pension income, savings income, dividend income, tax-free income and tax deductible payments, so you will still have to do the donkey work gathering together figures from various documents such as your P60 and P11D if you are employed or invoices and expense receipts if you are self-employed. And, as it doesn't break down tax deductible payments into individual expenses and payments such as pension contributions, car allowances and working from home expenses, you will have to work out one figure covering the lot.

But once you've entered your age and whether or not you are eligible for certain allowances - all explained in a help section - the calculator will tell you your estimated liability for the 2001-02 tax year. This saves you time grappling with tax bands and rates or, if you insist on working out the sums for yourself, serves as a useful comparison to see if your calculation is at least along the right lines.