Tax Return Tips
By Nick Braun MSc PhD
Here's a little story for you. A couple of youths were walking around Tesco one morning. One of them was tossing a 10p piece into the air and catching it between his teeth. Someone accidentally bumped into him and he started choking on the coin.
His friend became hysterical and started screaming for help as the lad struggled for breath and started turning a peculiar shade of blue.
A middle-aged man wearing a polyester suit and thick glasses was sitting in the restaurant sipping a cup of tea and reading a newspaper. When he heard the commotion he folded the newspaper, stood up and calmly walked over. When he reached the choking youth he carefully took hold of his testicles and squeezed gently but firmly.
After a few seconds the lad convulsed violently and coughed up the 10p coin, which the middle-aged man caught in his free hand. Releasing his grip he returned to his table and continued reading his newspaper.
The other lad ran over and started thanking him profusely. "I've never seen anyone do that before. It was amazing! Are you a doctor or something?"
"No," the man replied, "I work for the Inland Revenue".
OK, so it's not a true story and it's not fair to describe all tax inspectors like this... not all of them wear polyester suits and have thick glasses.
Well folks it's that time of year again. If you haven't already done your tax return it has to be in by the end of this month, along with any tax you owe. There's not much you can do to cut your tax bill at this late stage, but here are a few pointers which may come in handy... and may also be useful next year:
Penalties for Being Late
Most people think that if you submit your tax return late you have to pay a £100 fine. In fact, you only have to pay the fine if your return is late AND you still owe some tax for the year.
Hence, if you are unable to complete your return on time but know roughly how much tax you owe, you can avoid the £100 fine by simply paying the tax (plus a little bit extra to be on the safe side) by 31st January. You can then submit your Return a little later and avoid any penalties or surcharges.
Talking of surcharges, the next deadline to watch out for is 28th February when a 5% surcharge is applied to any tax remaining unpaid for the tax year 2005/2006.
However, the surcharge does not apply to the first instalment due for 2006/2007 which many taxpayers are also due to pay by 31st January.
So if cashflow is tight and you can't quite manage to get all your tax bill paid by 28th February, you should at least try to pay any remaining tax due for 2005/2006. In that way, the surcharge can be avoided.
31 January is the Only Day When Blanks Can Kill
If there's anything unusual about your return, for example, if you suddenly don't have income that you declared in previous years, tell the taxman why in one of the "additional information" boxes on your tax return – doing so may prevent an investigation at a later date.
Forget What Your Maths Teacher Told You
When it comes to rounding the numbers entered in the boxes on your tax return, the taxman doesn't round figures to the nearest whole number like ordinary mortals.
Income is rounded down but deductions can be rounded up. So £1.60 of income becomes £1 and £0.30p of deductions becomes £1.
This beneficial rounding system works in your favour, but sadly most software packages fail to take advantage of it.
In fact, one of our authors managed to save a client £25 simply by correctly rounding all of the boxes on his return up or down as appropriate.
Guidance Notes
The taxman publishes detailed guidance notes to help you fill in your tax return. Most of these notes are useful.
You do need to take them with a pinch of salt, however, as the notes are based on the Revenue's view of the law and this is not always the same as what the law actually says!
Furthermore, in a few cases, the notes are just downright wrong!
And What About Property Investors?
Only One Extra Page for Property Investors
If you own investment property you have to complete the so-called Land & Property pages on your tax return.
If you don't have these already you can download this two page form by typing "sa105.pdf" into Google.
Most property investors only have to complete the second page. The first page is for those who own furnished holiday lettings. For more information about the tremendous tax benefits of furnished holiday lettings, click here.
Xenophobic Taxmen
Income from overseas property doesn't go onto the Land & Property pages, however. Those with overseas rental property will need to get the 'Foreign' pages for their Tax Return.
This time, you will need to type "sa106.pdf" into Google to get a five page form. Foreign property income needs to be entered on pages F4 and F5 and don't forget to claim a deduction for any foreign tax paid on page F3.
So, is it Really too Late to Save Tax?
Well, never say never!
For example, any Gift Aid payments made up to the earlier of 31st January 2007 or the date you submit your 2006 Tax Return can be claimed as a deduction against your tax bill for 2005/2006 instead of waiting until next year.
Sometimes then, it pays to hold your return back until the last minute so that you can claim a few extra deductions!
And Finally
Don't trust the post – once we're into the latter half of January, it's generally safer to hand-deliver your tax return.
A hand-delivered return which reaches the Revenue's post room by 7.00am on 2nd February will escape the late filing penalty (Electronic returns need to be in by midnight on 1st February though!).
