MANY HAPPY TAX RETURNS

Self assessment of income tax has started. More than eight million of the newly designed self assessment tax forms have been sent out. The Inland Revenue cannot say how many older people have got one. But it could be up to a million. If you have not already got a tax return dated 1996/97 then self assessment probably does not affect you. But even so you cannot afford to ignore the new tax rules. Some of them apply to everyone. And since we last covered this subject in September they have become a lot clearer.

Rules for everyone
Even if you have not been sent a tax return, there are new rules which apply to everyone.

You must keep records of your income and capital gains. That means keeping any piece of paper which relates to them and will include

• letters or documents relating to your state pension or benefits
  
• statements and pass books from your bank or building society
  
• details of any shares you might be given by your building society if it converts to a bank
  
• vouchers and documents relating to dividends on any shares you may hold
  
• your P60 or other information about a pension from an ex-employer
  
• any documents about a personal pension
  
• receipts or letters about objects you buy and sell which may be needed for capital gains tax
  

Generally it is safer to keep the original documents. The Revenue will not always accept copies. If you do not keep these records then you could face a penalty of up to £3000. Of course, it is very unlikely that the Inland Revenue would charge you that much just because you had mislaid something. The maximum penalty will be reserved for people who are clearly out to defraud. But if there is an enquiry into your income and you do not have - or cannot get - the relevant documents then it is likely that you will be charged some penalty. And remember that the Inland Revenue can now open an enquiry without having any reason to be suspicious. Some people will be randomly selected.

Under the old rules there was no obligation to keep records at all. But most people did and it was a good idea to keep them for six whole tax years because the Revenue could look into your tax affairs that far back. Years before 1996/97 come under these old rules so this year you should still keep records back to 1991/92 to be really safe. Under the new rules you can get rid of things more quickly. If you have any income from self-employment then you must keep all your records for 1996/97 until January 31 2003. If you are not self-employed then you must keep them until January 31 1999. Perhaps in future February 1st will become known as bonfire day when we can all safely burn our papers from one previous tax year!

These dates can be extended. If there is an enquiry going on into your tax return you cannot get rid of your records for that year until the enquiry is over. And if you put your tax return in late - which is not a good idea - then you must keep the records for up to 15 months after you file it.

Apart from keeping records you also have a new obligation to tell the tax office about new sources of income. If you got a new source of income in 1996/97 then you must tell the Revenue by October 5 1997. That will enable them to decide if you need a tax return. If you do not tell the Revenue in time and tax on the new income is paid late then you may have to pay a penalty which could add 50 per cent to the tax due. So if you get a new source of income such as interest from an offshore bank account, a new pension, new income from renting or letting property, or any other source tell the Revenue in good time.

The tax return
The Inland Revenue cannot say how many older people have been sent a self assessment return. But it is at least 200,000 and may be as high as a million. It will include anyone who

• pays higher rate tax
  
• has income from overseas
  
• is a taxpayer and receives some investment income gross
  
• is self-employed
  
• has income from rents or letting property
  
• has state benefits which are more than their tax allowances
  
• is a company director or a partner in a business
  
• has complicated tax affairs
  

If you have been sent a tax return then you will know that it looks pretty daunting. The basic return is 8 pages long and comes with a 30 page explanatory book and a 12 page tax calculation guide. But that is just the beginning. There are nine other parts that you may have been sent and each comes with its own explanatory notes - altogether a wodge of documentation an inch thick. Some people will not need any of these extra bits. And normally, if they do, the tax office should have included the ones required and they will all be bound into one booklet. But sometimes there will be parts missing especially if you got a new kind of income during the year which the Revenue did not know about. It is your responsibility to make sure that all the parts you need are there.

The additional parts that may affect you are

• foreign - if you have any foreign income such as a pension from overseas or interest from an offshore bank or building society.
  
• land and property - if you have any income from rents. But you do not need to get this if you just do the rent-a-room scheme, renting out a room in your house for less than £3250 a year (£4250 in 1997/98).
  
• self-employment - if you have been self-employed in 1996/97.
  
• employment - if you have worked for someone as an employee at any time in the tax year 1996/97.
  
• share schemes - you only need this section if you have received special deals - usually through a job or business - on acquiring or selling shares. You do not need it if you have simply bought or sold shares at market value.
  
• capital gains - if you have made profits of £6300 or more or sold property or shares worth £12,600 or more in 1996/97.
  

The other sections are for partners in businesses, people who live overseas, and anyone with an income from a trust. If you do not have the parts you think you need send for them at once using the phone number on the form. Each part comes with a set of notes which tries to explain how to fill it in. The notes also contain details of extra help sheets and leaflets. If you think you want any of these they can be ordered from the Inland Revenue.

Deadlines
There are two dates that should be written on every taxpayer's heart. You must send back your tax return by September 30 1997 if you want the Inland Revenue to work out your tax for you. You still have to fill in a lot of fiddly figures and do some adding up, especially if you have foreign income or you are self-employed. But the actual tax calculation will be worked out by the tax inspector - or their computer.

If you miss this deadline, there is no penalty but you have to work out the tax yourself. You can either use the 12 page Tax Calculation Guide provided by the Revenue. Or you can pay someone else to do it for you. Either way you have to get the return to the Inland Revenue by January 31 1998 or face an automatic penalty of £100. Official estimates are that 15 per cent of taxpayers may miss that deadline and that will bring in nearly £130 million. If the return is filed more than six months late another automatic £100 penalty is imposed.

The tax that is due has to be paid in two instalments on January 31 and July 31 1998. So if you do send your return back close to the final deadline, it should be accompanied by a cheque for the first half of the tax.

Get help
All these difficulties will make many people want to get help. A lot of new firms are springing up offering to deal with your self assessment tax form. Many of the people involved in these firms are not trained or qualified accountants. Although many of them are ex-Inland Revenue staff and are perfectly competent, there is no professional body they can belong to, no guarantee that they will do a good job, and no easy way to get compensation if they do not. Until these agents are properly regulated you should be very careful indeed of anyone who is not a qualified accountant. If you do feel that you need independent help or advice with your tax return then go to a qualified accountant.

June 1997

e-mail Paul Lewis on paul@deadline.demon.co.uk