Published at 14:06, Friday, 27 April 2012

Should you make a tax return? Well, that sounds like a fairly simple question but during the year ahead many people will be finding out the hard way that they should have completed one and are now about to be penalised for not doing so.

The basic rules are quite simple. If HM Revenue & Customs (HMRC) sends you a return then you have to fill it in and send it back before the deadline.

For the year ended April 5, 2012 the deadline is October 31 if you use a paper return but you are allowed three extra months until January 31, 2013 if you file online. Failure to meet the deadline will incur an automatic penalty or fine.

Unfortunately, that is not the end of the story. Even if you do not receive a tax return, you are still required to ask for one if you owe tax for the year. It is up to you as the taxpayer to know when this might be the case.

If HMRC finds out about the missing tax later you will be fined for that too – even if you were not aware of it. You will also be charged interest in addition to the fine.

HMRC already send regular tax returns to people they think will have tax to pay but many of those who have liabilities for the first time will have escaped their notice.

HMRC is aware of that and is now targeting this group and, in particular, those who pay higher rate tax. The normal PAYE system which is applied to wages, salaries and pensions will generally collect the right amount of tax on that income.

If you have rents or are self-employed then you should already be submitting tax returns. If there is another source of income, however, such as bank interest or dividend income, only the basic rate liability is satisfied when you receive it – a higher rate taxpayer will have more to pay. That is usually where the missing tax arises for those who fail to pay accidentally.

This extra tax can sometimes be collected by an adjustment to your PAYE tax but only for the current tax year.

This is likely to be an increasing problem over the next few years as the amount of income you can receive before being liable to higher rate tax is not being increased in line with inflation. The tax-free threshold is certainly going up substantially but you still hit 40 per cent at the same total level of income (£42,475).

This is technically called fiscal drag but all the fancy name really means is that there will be more people paying 40 per cent tax.

For over-65s the figure is a little higher as they currently still benefit from a higher tax threshold. As this is withdrawn gradually once income exceeds £25,400 (last year £24,000), however, the elderly can actually have unforeseen tax liabilities at even lower income levels than the rest of us.

Careful planning can often remove or reduce these tax issues but, if you think you may be affected, it would be better to have your position checked.

If you would like further information on any tax matters email moneymatters@armstrongwatson.co.uk or call Armstrong Watson on freephone 0800 195 2161.

Published by http://www.cumberlandnews.co.uk