Looking at your tax return ahead of time
Q : I have just received a letter informing me that I need to complete a tax return for the tax year 2008/2009. Why have I been asked to do this and what do I need to do?
A: The first thing to say is that you are not alone. Around nine million similar tax return letters arrived through Britain’s letterboxes this Easter, and many millions of us promptly put the envelopes to one side.
The good news is that you are a long way off any deadlines that are set to complete your return, and in fact some of the information you require may not even be available to you just yet as we have only just gone past the tax year end.
If your tax affairs are fairly straightforward then, like most people, you will ask the Revenue to work out your tax bill, and that normally means that the tax return must be back with the inspectors by the end of October.
The absolute deadline is the end of January, and, if your tax return stays in its envelope after that, then you’ll face a hefty £100 penalty charge.
So while the deadlines are still some way off don’t leave it until the last minute, instead start now to ensure you have and gather up, the relevant information required for submitting a return.
The purpose of the tax return is to identify any underpayments or overpayments of tax. For the majority of people who are employed, most of the tax they pay is deducted from the source by their employer via a tax coding system.
What your employer is unaware of however, is any additional income you receive from investments or rental properties, therefore the tax return will capture this additional information.
In addition it will be a record of any gains you have made from disposing of assets such as additional properties.
As I said earlier, whilst the return does not need to be in for some months, you should start to receive information that is relevant for completing the form.
You will need accurate information on your income, savings and investments, so get into the habit of filing key documents when you receive them. Banks and Building Societies will be sending you statements that indicate what interest you have been paid on monies held with them.
Your employer will also be giving you a P60 and P11D indicating your income and any other benefits provided to you which are taxable.
If you are technically minded you can file your tax return online, using either the software supplied on the Revenue’s website or one of a number of commercial software packages.
You’ll have your tax calculated automatically, so you will be able to take advantage of the extended deadline of 31 January.
If your tax affairs are more complicated you should consider finding either a traditional accountant or one of the new advisory services set up to help with self-assessment tax returns.
It’s best to have a recommendation from a friend, if possible. Using an adviser will cost you, but good accountants will remind you of legitimate ways in which you can save tax — so that you should save money.
Higher-rate taxpayers with substantial tax liabilities may be able to contemplate more risky investments (Enterprise Investment Schemes and Venture Capital Trusts) where tax relief is available.
These are good ways of reducing your overall tax burden but again, you should seek professional advice on these schemes to ensure they will achieve what you want.
Planning ahead for next tax year, you should also consider ways of mitigating tax by considering pension payments or donations to charity.
Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact email@example.com or (028) 9022 1010