The 2007/2008 tax year is over, and you may need to complete a tax return. If hearing the words “tax return”, makes you stick your fingers in your ears, and sing to yourself, you need to read our starter article which explains who needs to fill one in, and why.

There are also some important changes this year regarding filing deadlines so read on.

Who does have to fill in a tax return?

As a UK resident individual, you are liable to pay income tax on your income, and capital gains tax on profits, for example, if you sell various assets such as shares or an investment property.

Concentrating here on income, you will need to fill in a self-assessment tax return declaring this income, and taxing it, if:

• you receive a return from HM Revenue & Customs (”HMRC”) or
• if you receive income which has not already been taxed.

The return covers a tax year, which starts on 6 April. The whole principle of “self assessment” is that the onus is on you to tell HMRC if you fall into the second category. You must inform them by 5 October following the tax year in which you receive a new source of income.

Individuals who are not higher-rate tax payers (i.e. their income is less than £39,725 in 2007/2008), and who do not have gains or income other than employment income, generally do not have to complete income tax returns. All of their salary is taxed under the PAYE system i.e. their employer has already deducted tax before paying them their salary. Similarly, even if they have savings in the bank, interest is ordinarily paid out, only after tax has been deducted by the bank first.

An important point here is that some such employees might be better off if they do complete a tax return. This would be the case if they could claim certain deductions on their tax return. For example, if employees have to pay their own professional subscriptions, these can be deducted from their taxable income, and reduce their tax bill. Such a claim to do this would be made on their tax return.

In principle, higher rate tax payers do have to complete tax returns, as even if they are employees, because if, for example, they also have some bank interest, often this should be taxed at 40% rather than the 20% deducted by the bank i.e. more tax is due. However, if they make charitable donations, or pension contributions such as to a private stakeholder pension, completion of the tax return allows them to claim the extra tax relief they are due on this.

In practice, more recently, people with such simple tax affairs have been sent a simpler form of summary sheet from HMRC, to complete instead of a tax return.

When must I submit my tax return by?

The filing deadlines have changed for the year 2007/2008 (i.e. the year ended 5 April 2008). These are now:

• 31 October 2008, if you wish to file a hard “paper” copy of the tax return, or
• 31 January 2009 if you are prepared to do this online.

Failure to submit on time will lead to an automatic £100 penalty, with future increases possible if the return remains overdue.

Previously, the date when you filed your return was also important if you wanted HMRC to perform the calculation of how much tax to pay (based on the income etc information you provided). Now, in respect of a paper return filed by 31 October 2008, HMRC will calculate the tax. We are told that if you file online, the software will calculate your liability.

I have to complete a tax return then, but how?

A big question, and not one that can be answered in a few sentences here. Some of our other articles give explanations in some areas e.g. what costs are and are not deductible but these will by no means tell you everything. There are two steps to make in the first instance, and quite possibly a third.

1. Do actually read the guidance notes provided by HMRC. You might need to do this a few times, and even then, you might need help to interpret them, but some answers are given if you follow the instructions carefully.

2. Gather all information as soon as possible about the tax year to which the return relates. The longer you wait to complete this, the more difficult it is to find the relevant information. We mean things like your P60 if you have had an employment in the year, bank statements showing interest received in that year, etc. If you run a business as a soletrader, you will also need the relevant set or sets of accounts. This is where it can become complicated, and leads to the third step.

3. If you are self-employed, or have other complicated tax affairs, you should strongly consider engaging an accountant. They will be able to draw up accounts for your business, from which they can work out the trading income that should be taxed in the relevant year, and will be able to advise on the treatment of other sources of income and gains. They may even be able to save you money by advising, and making, claims for tax relief.

The Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England & Wales (ICAEW) are two professional bodies which will have details of qualified advisers, but as with any service, you will have to make a decision over who to use, and agree how much to pay. It is usual to have a letter of engagement with your accountant, which you both sign and which details what he/she will and will not do, and how much it will cost. Seek recommendations from other people as to who they use.

You will still need to provide to them the information to complete the return – as per step 2 above. You remain responsible for the contents of your tax return, and you have to sign it to say that it is correct and complete.

Whatever you decide to do, our advice would be to think now about how you are going to get your return completed, as this will help prevent late filing, and penalties.

As with all our information in The Business Lounge, this is not comprehensive tax advice, and may not apply to your specific circumstances; to discuss how these issues affect you, contact your accountant.