Deadline and fines may sneak up on thousands of taxpayers

Hundreds of thousands of taxpayers are facing Revenue penalties for busting the 31 January self-assessment returns deadline, and tax experts say many of these are unaware they are about to be hit.

Around 998,000 penalty notices were issued to taxpayers who missed the 31 January deadline last tax year. This year, Revenue targets suggest the number of fines handed out will be at least 600,000. Late filers get an immediate £100 charge, and in some persistent latecomers' cases, £60 a day for every day their return is not received.

If you were sent a tax return by 31 October 2005, you must pay the balance of any tax you owe by the end of this month. In addition to fines, HM Revenue & Customs will also charge interest of 5 per cent on tax payments not received within 28 days of the cut-off date, and an additional 5 per cent if the amount remains unpaid after six months.

Introduced in 1997, self-assessment applies to the self-employed, company directors and partners, higher-rate taxpayers and people with complicated tax affairs. Today, tax advisers fear confusion over new self-assessment guidelines could see thousands of people stumble into a situation where they could be fined. Those particularly at risk are among the one million taxpayers withdrawn from self-assessment in April 2005.

Although many people have it in black and white from the Revenue that they no longer need to file a return, some of these maybe obliged to carry out self-assessment, due to a change in their circumstances.

Bernard Oster, the managing director at Tax Watchdog, says: "Many people are confused over whether they are required to complete a tax return or not. Some, having been told they don't need to do so, might then have received a request from the Revenue stating they are expected to complete a return within a matter of weeks."

Rules put the onus on individuals to advise the tax office if there are any relevant changes in their financial circumstances which could trigger the need to complete a self-assessment return. Anyone failing to inform HM Revenue & Customs of such changes risks being penalised.

Tax Watchdog says individuals must file a return if they sell or give away chargeable assets worth more than £32,800 (for the tax year 2004-05), or if they have tax due at the end of the year that cannot be collected via their PAYE tax code. People who have derived an income from property of more than £2,500 during any one tax-year must also file a return.

On the flip side, if you are issued with a penalty, you may not have to pay it. "You won't have to pay up if you don't have a tax liability or if you have overpaid tax for whatever reason," says Mike Warburton, a senior tax adviser at Grant Thornton.

For those hoping to rush through a return, there is help available from the Revenue, including the facility to file online (but be warned: filing online should not take long, but registering for the service can take up to five days). And even though accountants are busy at this time of year, and may not be able to take your case, tax adviser Andrew Hayes advises: "Don't go for the first one in the Yellow Pages. Ask your friends for a recommendation."

HM Revenue & Customs: www.hmrc.gov.uk; 0845 900 0444;

Tax Watchdog: www.taxwatchdog.co.uk, 0845 058 2222;

Grant Thornton: www.grant-thornton.co.uk, 020 7383 5100

Michael Walker: 'I was overtaxed then penalised too'

Trade union official and father of three Michael Walker was unmoved when he started to receive correspondence from the Revenue about self-assessment: "My priority is my family and my members, everything else is bottom of the pile. I was already paying tax out of my earnings and don't have complicated affairs. I assumed if it was important enough, they would really be chasing me."

Mr Walker, 46, who lives in Dulwich, south-east London, was sent returns for the tax years 03/04 and 04/05 and accrued £400 in penalties when he did not respond to the Revenue's correspondence.

In November, he contacted Tax Watchdog. His accountant established he had actually overpaid tax through his PAYE and can now expect to have his penalties cancelled.

It is possible Mr Walker found himself on the Revenue's radar as his earnings began to approach the higher-rate taxpayers' band. Accountants say in some cases if your earnings reach this level and you enjoy certain company benefits too, it may decide to monitor your situation for a few years through self-assessment before reflecting any extra tax payable in the individual's PAYE tax code.