Personal finance: Red letter day

LAST week I was waiting on an overcrowded tube platform next to a women opening her post. She lingered over a bright red letter from the Inland Revenue. She looked surprised - and then became visibly distressed as she read on.

Copies of the letter she was holding have been sent as a wake-up call to the 2.8 million people who received a tax return for the 1997/98 financial year but haven't got round to sending it back yet.

The Revenue's red letter states that you will be charged pounds 100 if you don't get the tax form back by 31 January. That's just the start of a long and increasingly nasty set of penalties. If you don't send back a cheque for your estimated tax bill by 31 January, the Revenue will start to add 8.5 per cent annual interest. If you haven't sent the money on 28 February, it adds an extra 5 per cent to your bill. And then there's another pounds 100 fine in July for those who have still not filled in their tax return - by which time we will have received a new form for the 1998/99 tax year.

It's like Who Wants to be a Millionaire in reverse. Except the questions on your tax return are much, much harder.

"It's not a straightforward calculation," admits Heather Self, tax partner at Ernst & Young in Manchester. "But the Revenue does take you through it in a step-by-step calculation."

There's also a Revenue helpline and it is useful, although the advisers can't tell you what to put in every box on the form. (Call 0645 000444).

Even so, many people find it too daunting and give up. That's fine if you leave plenty of time before the deadline for sending back the return. Those who sent back forms before the early deadline of 30 September last year have had their tax bill worked out by the Revenue. Don't be too smug: you still have to pay the cash by 31 January, so contact your tax office if you have not received a tax calculation or a payslip.

Ms Self would like to see tax returns made simpler for people with uncomplicated tax affairs. She is a committee member at the Chartered Institute of Taxation, which produced a paper last year calling for tax reforms for those on lower incomes, including many pensioners who receive tax returns. In the US, where everyone gets a tax return, there is a variety of forms which range from the very simple to the highly complex, depending on an individual's tax position.

Over here, the "one size fits all" self-assessment form causes headaches for millions of taxpayers. There are still 373,000 forms outstanding from the last tax year. The Revenue believes many of these people have moved and never received their forms. Of the 2.8 million forms still outstanding for 1997/98, the Revenue thinks 90 per cent are with accountants who won't return them until the last minute.

But that still leaves another 280,000 people with no accountant or tax adviser who will face hefty fines if they don't act next week. Unsurprisingly, the new breed of tax-advice shops are enjoying a boom. Staff at Tax Team centres in 28 towns are working on up to 100 returns a day. Gerry Hart, head of the firm, says many last-minute customers have made a start on their forms.

"They say they have done the form and could we have a look, but they are appalling. It's not deliberate but they sometimes put wrong figures in and would end up paying more than they should do."

If you decide to opt for some last-minute help, expect to pay at least pounds 75 for the most basic service. And check that the adviser is qualified - giving tax advice is an unregulated industry. Accountants have the letters ACA, ACCA or CA, and tax advisers have ATII, FTII or ATT.

If you decide to save cash and fill in your own form, tax adviser Paula Higgleton suggests working through the form by filling in the supplementary pages first and then working through the core eight-page tax return. (See the box above for more of her tips.)

And internet users can get free help at the Revenue's own site, www.open.gov.uk/inrev/sa, which has a version of the tax return to download and fill in. You can get help to work out your bills using the interactive calculator at www.quicktax.co.uk

10 steps to sorting out tax returns

1. Get your form out and check you have all the pages you need. The tax return is an eight-page form but you may need extra pages (for income from property or self-employment, for example). Telephone the Revenue order line on 0645 000404 to order this. Hurry.

2. Get all the paperwork together. If you are missing some vital documents you need to complete the form, use an estimated figure. Put a tick in box 22.3 and provide details in the white space.

3. Writing "as per P60" or "see my P11D" is not acceptable. You need to copy out the correct figures on to the form.

4. Fill in the supplementary pages first before tackling the main part of the form. Read the notes FIRST.

5. Because you have left your form so late, you have to work out your own tax bill. This is complicated but the form is designed to help you work it out, step by step. Call the helpline on 0645 000444.

6. Double check everything on the form. Sign and date it on page 8.

Your return will be rejected if you forget to sign.

7. Copy the form and put all the paperwork in a safe place.

8. Desperate? The Chartered Institute of Taxation can provide details of tax advisers in your area. Call 0171-235 9381.

9. If you don't include a cheque for your estimated tax bill, the Revenue will start to charge interest on your unpaid tax at 8.5 per cent a year. If you are truly desperate, send back the form and work out the tax bill later. At least you will avoid the pounds 100 penalty.

10. A local tax office will be open on Sunday 31 January, so you can take the form in by hand. You can take the form in to any tax office. (Prepared with the help of Paula Higgleton, chartered tax adviser.)