File those returns now - or pay up

MORE than 3 million people - one in 10 of all taxpayers - have less than three weeks to send back new-style tax returns to avoid automatic fines from the Inland Revenue starting at pounds 100.

Some tax advisers are predicting that one million or more people will end up missing the 31 January deadline - incurring instant penalties totalling pounds 100m. Interest on unpaid tax from these and other late payers could take the penalty total to pounds 400m or more.

Most returns still outstanding are for self-employed people or those with additional freelance-type earnings, and in many cases these people will be relying on accountants or other tax advisers. But among those yet to file there are also thought to be hundreds of thousands of people with simpler tax affairs, such as those in the 40 per cent tax band who owe some extra tax on savings and investments.

The Revenue is predicting a mad rush over coming weeks to meet the end- of-month deadline - the first that really matters under the new self- assessment system that requires nine million people with earnings that have not been fully taxed to file new-style returns. The 31 January date is also the deadline for paying any tax owed. Tax unpaid by this date starts racking up interest at 9.5 per cent.

People filing returns now - and many of those who filed before Christmas - will almost certainly not receive a bill in time. Unless they want to incur interest, they will have to estimate the tax they owe and then pay at the end of January anyway.

Most returns still outstanding are thought to be from people with tax advisers, prompting suggestions that advisers may be sitting on returns until the last minute in the hope that Revenue officials will scrutinise the forms less carefully. The Revenue denies there is any advantage in waiting - and leaving it to the last minute could even mean a pounds 100 fine if the form should have any mistakes and need to be returned to the sender.

If you are a late filer and you do not want to use an accountant or tax adviser - and the Revenue claims there is no more need to than under the old system - it really is "crunch time". It is vital to at least look at the form now, even if you would rather put off the more ambitious part of filling it in for a little longer. You need to check you have the right pages and the right paperwork: if you do not, it may take some time to get them together.

DIYers, however late, may also be reassured by Revenue claims that 90 per cent of people who do not have an adviser have already managed to file. Two thirds of people surveyed also had no difficulty in completing their return, it adds. There is also a Revenue helpline open seven days a week until 10pm (0645 000 444) to help people fill in their forms although tax advisers are keen to point out that it will not provide tax-saving advice.

The greatest challenge may be for the self-employed or those with some earnings that have not been taxed. Many of these may face tax bills of many thousands of pounds and may be desperately rooting around for expenses to offset against their income. The explosion in mobile phone and home computer ownership may mean many people will be claiming for these for the first time. The self-assessment system does not require you to provide supporting receipts at the time of filing returns, but people should be aware that they may be required to justify claims for expenses. If they do not keep adequate records they could face a fine of up to pounds 3,000.

One in a thousand taxpayers under the new system has already been randomly (and secretly) selected for an "inquiry" - basically an audit of their tax return. And others should not assume that just because there is no immediate querying of a return that the Revenue will not question it subsequently.

Tax advisers say the Revenue has been operating a "process now, check later" system, which means tax bills going out now could prove to be wildly inaccurate.

One adviser claims that the Revenue is already aware of more than 70,000 "over-repayments" which it will be pursuing at a later date.

The important steps to take

Find that uncompleted return today and have a preliminary look: you may not be able to complete it straight away.

Check you have received all the pages you need. If not, call 0645 000 404 to order asap: this can take time.

Read through the return and make a list of all the paperwork you need. Collect all that paperwork: chase your employer; financial institutions may be able to give you figures by phone

Have the second sitting for filling in the return asap. Try not to leave it until the end of January. If you miss something out or make a mistake and the return has to be sent back, you will still be fined pounds 100 if you can't turn it round by 31 January.

As well as filling in your return you need to calculate your tax bill. It is highly unlikely the Revenue will now be able to get you a bill on time. The end of January is also the deadline for paying tax: don't pay on time and you will be charged interest at 9.5 per cent a year; don't get your return back in time and you will be fined pounds 100. So pay what you think you owe - if you pay too much, you will get a rebate.

If you pay by bank transfer, make sure your money leaves your account in time to get to the Revenue by the deadline.

Make use of the Revenue's helpline on 0645 000 444 if you have problems (open until 10pm every day), but don't expect tax-saving advice

*Ensure you sign your return and keep a copy

Keep the paperwork supporting your return for at least a year - in case you are selected for an "inquiry"