Hurry up if you want to save on tax

Paying only what you owe depends on making careful choices, says Helen Monks

When you could do it yourself or get an accountant to do it, do you really want the Inland Revenue to work out how much tax you owe? This is the dilemma facing about nine million people who are either self-employed, have rental, investment or freelance income, plus those with capital gains to deal with and those paying income tax at the higher 40 per cent band.All are obliged to complete a self-assessment tax return and 30 September is the deadline by which they must return their forms in order to guarantee the Revenue will work out their tax bill for the year 03/04. If not then they have to go through the time consuming and sometimes baffling prcess of calculating it themselves. However, Mike Warburton, tax partner at accountants Grant Thornton, says: "Where the Revenue can work out your bill it will, and might calculate what you owe right up until November."

When you could do it yourself or get an accountant to do it, do you really want the Inland Revenue to work out how much tax you owe? This is the dilemma facing about nine million people who are either self-employed, have rental, investment or freelance income, plus those with capital gains to deal with and those paying income tax at the higher 40 per cent band.All are obliged to complete a self-assessment tax return and 30 September is the deadline by which they must return their forms in order to guarantee the Revenue will work out their tax bill for the year 03/04. If not then they have to go through the time consuming and sometimes baffling prcess of calculating it themselves. However, Mike Warburton, tax partner at accountants Grant Thornton, says: "Where the Revenue can work out your bill it will, and might calculate what you owe right up until November."

There can be clear advantages to getting your return in early. Jim Boyd, tax director at the accountant BDO Stoy Hayward, says: "In certain cases, where tax due for the year falls below £2,000, it is possible to choose for the tax to be recovered by way of a PAYE coding adjustment as opposed to a direct lump sum payment, which could provide a significant cashflow advantage."

IFA Promotion reckons about 4.5 million rely on the Revenue to work out their tax bill. The end of September is not a statutory deadline, with 31 January 2005 being the last day to file tax returns. Those who bust this ultimate deadline pay an automatic penalty of £100, plus interest on the tax owed.

Returns can be made online at the Inland Revenue website until 31 January, but you will need to register first.

Also remember 5 October is the cut-off date anyone with income, or a potential tax liability that the Revenue does not know about, needs to tell the taxman by or face penalties.

Recent research from IFA Promotion suggests errors and miscalculations on self-assessment returns will cost UK taxpayers £296m this year alone. The Revenue can make mistakes, but then so can accountants and DIY filers. All this given, what are the pros and cons of self-reliance versus using the taxman or tax advisers to work out your bill?

If your tax affairs are fairly straightforward, then filing your own tax return ought to be relatively simple. You will need to assemble all relevant documents regarding income, including the P60 and the P11D form, which relates to benefits from your employer where relevant. You also need any paperwork which proves any interest and dividends earned in the last tax year.

Before filling out the form, taxpayers should check they are making the most of the tax breaks available. For example, if you have contributed to a pension you should make sure you have claimed higher rate tax relief: enter the gross rather than the actual payment otherwise you could lose out on the valuable tax relief. Mr Boyd warns: "UK taxpayers fail to claim around £4billion worth of tax breaks each year. If your financial affairs are anything less than straightforward you could be missing out."

When rule changes are frequent, many with even simple situations are seeking the peace of mind of using an accountant. Where it is perhaps more reasonably to expect expert assistance is in more sophisticated cases which, for example, involve capital gains tax calculations, cases where the individual has bought or sold shares in last tax year, or if they are involved in a husband and wife partnership.

If you have just started a new business or have only become self-employed within the last year, then it may be an idea to use an accountant in order to set up systems which show you which data you need to capture into the future.

Accountancy costs vary enormously, from a few hundred pounds to thousands for complicated cases. But remember these costs are typically tax deductible.

'Working out my bill was nerve-wracking'

Terry Williams is a self-assessment taxpayer at the crossroads: he has been working out his own tax for years but over the last year, the IT consultant's affairs have become more involved.

Mr Williams, 33, from south London, is finding that paying for personal tax advice has never looked so tempting - over the last tax year he has started to take income from some investments and is also planning to let his flat and buy a home outside the capital. And, since marrying wife Melissa, also 33, he has been wondering about the potential tax implications.

"My situation has been straightforward for the last few years, but that did not stop working out my tax bill from being nerve-wracking the first time. There is a chance I have been missing out on some tax relief, which an accountant would have picked up on, but with having to deal with the tax on my small business I wanted to keep my personal affairs as simple as possible."

YOU AND YOUR TAX RETURN: KEY DATES

* 30 September 2004

If you are filling in a paper tax return for 2003-04, you must send it back by this date. If you do so, the Inland Revenue will calculate your tax, tell you what to pay by 31 January and collect tax through your tax code, if possible.

* 30 December 2004

If you send your return over the internet, you must send it back by now if you want the Inland Revenue to collect tax through your tax code, if possible.

* 31 January 2005

If you were sent a tax return by 31 October 2004, this is the deadline for sending back your completed 2003-04 tax return.

* 1 February 2005

If you were sent a tax return by 31 October 2004, you will be charged a penalty of £100 if they have not received your return by this date.

* 28 February 2005

You may be charged an automatic 5 per cent surcharge if you were due to pay tax for the year 2003/04 and it has not paid in full by this time.

* 6 April 2005

The new tax year starts.