Tax Basics

With Hallowe'en falling this Saturday, the burning question is -- which are you more scared of, the ghosts and ghouls that abound on that day, or the paper filing deadline for 2009 Self Assessment Tax Returns?

First seen last year, the spectre of the early paper deadline was a first step on the slippery slope towards total computerisation, which is soon to be followed by the XBRL (eXtensible Business Reporting Language) requirements for corporation tax returns from as early as next year.

The tricks

As Foolish investors, it goes without saying that you are likely to need to complete a tax return every year to account for the higher rate tax due on all those thousands of pounds worth of dividends received. Similarly, your timely and inspired investment choices are going to produce superb gains on disposal, upon which Capital Gains Tax will become due.

However, assuming this is the first year, or first recent year that such a situation has arisen, and you have therefore not been sent a paper return for completion, you are well within your rights to not feel under any obligation to complete a return by 31 October. Aren't you?

Unfortunately not. One of the main tenets of Self Assessment is that you assess yourself, and this includes completing and filing a tax return where necessary even if HM Revenue & Customs have not specifically demanded one. Previously, you were required to notify HMRC by 5 October that you were liable to tax; although this deadline has been removed it does mean that you must now abide by the normal filing rules, and deadlines, of 31 October or 31 January.

And ignorance is no excuse, at least as far as HMRC is concerned and statutory penalties of £100 for late filing, together with 5% surcharges levied after 28 days and additional daily penalties (which have recently been increased) will apply.

So what happens if you think you may need to complete a tax return for 2009 but either do not have a paper form to fill in, or you have not yet collated all the required information?

The treats

The online filing process is actually not too burdensome, provided of course that you have a suitably modern computer, internet access and all your details to hand. You do not need to have an adviser and you may use HMRC's own online software to enter your details and work out your tax liability.

Note (Stockholm: NOTE.ST - news) that although you are not required to have an adviser, it may actually be prudent to use one, particularly if you have undertaken complicated or unusual transactions during the year -- if it subsequently comes to light that an error was made, if you have not sought appropriate advice, you could be considered to have acted carelessly, thus invoking the penalty legislation.

The registration process takes only a few minutes, although it does require the delivery of an activation PIN in the posts before you may actually submit your return. Note that PINs normally arrive within seven days, and must be used with 28 days, although you may like to leave a little longer just at the moment.

But the best treat of all is that the £100 penalty for late filing may not need to be paid at all.

Currently, any penalty levied for late delivery of a tax return is limited to the amount of tax outstanding at 31 January next following the end of the tax year of assessment. Put simply, provided you pay the correct amount of tax by 31 January 2010, no penalty will be due if you submit a paper return after 31 October 2009, or even an online return after 31 January 2010 (although in this latter case a penalty will be charged and later cleared on eventual submission).

HMRC is aware of the fact that its stick for beating the taxpaying public into tax return submission is a little on the soft side, and indeed legislation was included in the Finance Act 2009 to amend the charging provisions such that the penalty would apply regardless of tax payment made. However, as yet, these new rules have not received an official date for commencement, and it seems unlikely now that they will apply for any 2009 returns. 2010, however, may be a different story, but at least you have a fairly long time to prepare for your beating.