How to complete a tax return

Anyone who has to file a tax return for the year ending April 5, 2011 has just over a month left to submit their forms – or risk being hit with a £100 fine.

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More than 10 million people need to fill in a tax return for the 2010/ 2011 and must file them by January 31, 2012. HMRC is only accepting online returns now - file on paper and you could still receive a £100 penalty, as the October 31 paper-filing deadline has now passed.

If you haven't sent an online tax return before, make sure you register for HMRC Online Services by January 21. This will allow HMRC time to send you your Activation Code.

To register for HMRC Online Services, go to

Here, we take a look at all the information you will need to compile your tax return, and give tips on how to fill out the form, as well revealing some of the other penalties you could face if you don’t act by the January 31 deadline.

What information must I have?

If you are employed and have to fill in a tax return, then you will need your P60 form which you should have been given by your employer.

This states your earnings for the year. You will also need your P11D form which shows your company benefits for the year, which again you should have been given by your employer.

You will also need your payslips and details of any share options you might have. If you are self-employed, you will need your accounts for the year, including purchase and sale ledgers and petty cash books, plus invoices and details of any expenses and receipts.

You must keep records of all information used to complete your tax returns for 22 months after the end of the tax year or for five years and 10 months for those with a business or income from letting out property.

There is a maximum penalty of up to £3,000 for each tax year for which records have not been kept. Finally, if you are an investor, you will need any dividend vouchers, interest certificates from banks or building societies, and rent records if you own a property which you let out.

How do I fill in the return?

Once you have collected all the information you need, and you have received your Activation Code from HMRC, you can start filling in your return.

Make sure you enter whole pounds only and do not include pence. Round down income and round up tax paid/ tax credit. When filling in the ‘amount’ boxes, start either on the left by the £ sign, or on the right before the decimal point – it does not matter which.

If you have to enter negative amounts, do this by entering a minus sign in the box provided, before your figures.

If you file your return online, the service will calculate how much tax you owe automatically. If the total of your business profits and any other taxable income is more than your tax free allowances, you'll pay tax on the difference.

The tax due will be included on your Self Assessment Statement.

Which expenses can I deduct?

If you are a buy-to-let landlord, the biggest item you can offset as an expense against your rental income will usually be mortgage interest. But you can only claim tax relief on interest repayments, not capital repayments.

For those who are self-employed, the taxman allows you to reclaim any costs that have "wholly and exclusively" been incurred in relation to your trade. You can then deduct these expenses from your income and pay tax only on what is left.

Bear in mind that if your personal and business expenses are combined – for example, you make phone calls to customers and friends and family using the same telephone – you can only use the business element as a tax-deductible expense if it can be easily separately identified.

Similarly, if you spend a lot of time driving for work purposes, but use your car for both personal and business use, you will need to keep records of your total mileage and number of miles travelled on business to calculate the correct split.

If you set aside a room as an office, you can also claim a proportion of the house heating, lighting and council tax. Other expenses you can claim back include broadband use for business purposes, professional fees such as accountancy costs, book-keeping, office and printing supplies.

Stationery and postage can also be deducted. Entertainment costs, such as eating out with a client, however, are not permitted, although you can claim back small amounts to cover the cost of meals and drinks while away from home.

What should I do if my income has fallen?

Amid all the current economic doom and gloom, many taxpayers may find that their taxable income is falling, so it is worth considering whether payments on account can be reduced.

Payments on account can be reduced by using form SA303, sending a letter to HMRC or by using HMRC's online systems, if you are registered to do so.

However, the reduced amount must be a realistic estimate of what the 2010/11 liability will be as HMRC can charge penalties if it thinks you have abused the system.

Why is beating the deadline so important?

As well as the £100 penalty for missing the January deadline, there are plenty of other fees and charges that tardy taxpayers will face. The longer you delay, the more you'll have to pay, as there are further late-filing penalties after three, six and 12 months.

After three months, additional daily penalties of £10 per day will apply, up to a maximum of £900. 

After six months, a further penalty of 5% of the tax due or £300, whichever is greater, is imposed and after 12 months, another 5% or £300 is charged. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

Anita Monteith, from the Institute of Chartered Accountants in England and Wales’ (ICAEW) Tax Faculty said: "You will not have to pay a penalty if you have a reasonable excuse for missing the deadline.

"This must be something major and unexpected that is outside your control. Some examples include: documents being lost through fire, theft or flood that you cannot replace in time, life-threatening illness, the death of a partner shortly before the filing date or industrial action by Royal Mail over a lengthy period of time.

"You should make any claim as soon as possible - do not wait until you receive the penalty.”

Remember to save a copy of your final return and print a copy of the receipt you receive when you submit it. For help and advice on completing a return, visit or call the Self Assessment helpline on 0845 9000 444.

Please note: Any rates or deals mentioned in this article were available at the time of writing.

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