Unhappy returns from the taxman: Revenue gets tough as new forms cause confusion. Neasa MacErlean reports

TAX ADVISERS say there is a growing mood of confusion and fear among the 8 million people due to file tax returns by the end of this month.

Some - mainly higher-rate payers and the country's 4 million self-employed - will have already sent in returns that were mailed in April to everyone the Inland Revenue believed needed one. Others are expected to file by 31 October, after which the Revenue threatens to charge interest and levy fines.

Each year, many thousands are thought to miss the Halloween deadline - although the Revenue does not give out statistics. What is certain, however, is that the tax authorities are increasingly using their discretion to impose penalties. Interest is currently set at an annual rate of 6.4 per cent.

The first instalment of tax for the self-employed becomes payable on 1 January. The Revenue plans to process returns submitted on time and send out the resulting assessments by the end of November. This leaves a month for taxpayers to appeal against assessments they believe are too high. However, the Revenue warns that late returns will be put at the bottom of the pile - resulting in late assessments, late payments and therefore interest charges and possible fines.

The introduction of new tax return forms this year is widely expected to make the process even more painful. A Revenue spokesman described the new forms as 'easier to use and easier to understand' - a view not widely shared outside the tax HQ at Somerset House.

'The new forms are incomprehensible,' said Tim Hardman, a tax inspector turned adviser in Durham. 'In trying to make them simpler, they've asked more questions. The one question which may apply is therefore hidden among hundreds of others.'

He added that the forms do not recognise some of the complexities of working life: 'If you have more than one occupation, there is still only space to put down one job.'

TaxAid, a charity based in Kilburn, north London, reports an upsurge in its workload recently because of the new forms. 'People come in and say they don't know how to cope,' said volunteer Chris Lee. 'The new forms are terribly forbidding. They have now put the notes on to the tax return. People used not to read the notes; now they don't read the form.'

Many people will try to complete the forms alone, when they could probably recover the costs of a professional adviser just by eliminating basic mistakes and introducing basic tax-efficient techniques.

For example, the Revenue says the most popular year-end dates for the self-employed are 31 December and 31 March. But people working to these deadlines are paying off their tax liabilities up to a year before they really need to.

The current returns, for example, deal with the tax year 1992/3. The self-employed are assessed on their income for the trading year that finishes in that fiscal year, which runs from 6 April one year to 5 April the next. Tax for this period is payable in two instalments - on 1 January and 1 July next year - regardless of whether the trading year finished as early as 30 April 1992 or as late as 31 March 1993.

Some taxpayers are already becoming concerned about the new system of self-assessment, due to be introduced for the tax year 1996/7. Details are still fuzzy but they are expected to be spelt out in December's Finance Bill. Taxpayers will then have the choice of producing their own liability calculations, or continuing to send in detailed information so their tax offices do the sums.

Of particular interest to advisers, however, are the tax- planning opportunities provided by the planned move from the 'preceding year basis' to 'current year basis' for the self-employed. The period for which tax payments can be delayed - up to 21 months after the person's trading year ends - will be substantially reduced. No longer will a self- employed person be able to put off the date of paying tax by 21 months merely by choosing a 6 April year-end for his business. However, the transitional arrangements will offer benefits to those who time their tax affairs carefully.

'It will be possible to make substantial savings,' said Mr Hardman. 'What you do will depend on your circumstances. Everyone should be aware of it, but we are perhaps 12 months to 18 months too early to start doing things now.'