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Is it worth guessing on tax?

14/ 7/2008

Q MY income tax affairs are rather more complex these days and it is unlikely that I will have received details of all my income and gains for 2007-08 in time for me to complete my tax return by the `paper' filing deadline of October 31 this year. Is it possible for me to use estimated figures to avoid a late filing penalty?

A TO use estimated figures, and subsequently amend these when the actual figures are known, does have the advantage of avoiding the automatic late filing penalty - but it can lead to practical difficulties.

Any amended return figures submitted on paper may cause delays before the amendments are processed by HM Revenue & Customs. However, once the return has been submitted, the Collector will demand the amount shown in the return until the revised figure has been processed, and this can be quite a frustrating situation. You may therefore wish to discuss with your adviser whether incurring a penalty for late submission of a correct return is a more cost-effective approach to take.

The issues to consider are whether fees insurance would be invalidated, the increased risk of HMRC enquiring into the return and whether this can be mitigated by suitable `white space' disclosures, the combined costs of ascertaining and submitting estimated and then revised figures as compared with a single final return, and the inconvenience of dealing with a Collector who believes that a higher amount of tax is owing.

You might also wish to consider paying what you feel is the correct amount of tax by the due date of January 31, 2009, in which event the penalty will ultimately be reduced to nil.