Knowing when and how to deal with income tax can seem overwhelming. Prevent the panic and start working through your figures now, advises Alison Brace
I ncome tax. Well, you might groan but let's face it, it's a headache which just has to be dealt with. The earlier in the financial year you tackle your tax return, the more you ease the pain of parting with your cash.
September 30 is the magic date to pop in your diary. If you submit your completed tax return by then, HM Revenue and Customs (HMRC) will calculate for you what you owe by January 31, 2008. If you leave filling in your tax return until the next deadline January 31 then you have to do your own calculations or use HMRC's online filing facility to work out what you owe. Miss that deadline and you'll be fined pound;100.
So even if you are wrestling with the vagaries of your new timetable or pulling your new Year 4 class into line, it's better to set aside time now and avoid the post-Christmas pressure.
So, exactly who needs to fill in a self-assessment form? If you are a teacher in regular employment, then you will be paying tax through the Pay As You Earn (PAYE) system. Where things get tricky is when you sell that first novel or run a booming cottage industry in your spare time. Or maybe you rent out a room or a holiday home to bring in extra cash?
Any source of income that is additional to your main job is what HMRC wants to know about. Patrick O'Brien of the HMRC says: "The September 30 deadline is for those who are innumerate or averse to the figurework."
The rest, he claims, can file online and work it out by January 31. This year, to September, 861,347 taxpayers have filed self-assessment returns online an increase of more than 27 per cent on last year's numbers.
Given there are nine million taxpayers who need to file returns, there are clearly thousands out there who have a mental block when it comes to tax.
Janet Hill, a teacher who also runs her own educational business from home, readily admits that she is one of them. "I honestly need a rocket to get me to sort out my tax I am absolutely hopeless at it," she says. "If it weren't for my husband, Greg, the guys from the Inland Revenue would be knocking at my door."
Janet set up displays4teachers.co.uk in 2003. When she first started selling readymade classroom displays she was working just one and a half days a week at a primary school in south-west London. Her income from her business was so small that the tax issue posed few headaches.
However, as she increased the number of hours she worked in school, and her business began to grow, the paperwork became more complicated. She has just signed a contract with Language Centre Publications in Leamington Spa and spent the past year investing more money in her company.
"It's been important to get all the paperwork sorted out, find all the receipts for what I've paid for laminating pouches, ink, fees for artists so that we could work out profit and loss," says Janet.
"Given all the investment we've made this year, the business isn't making a profit yet, so I didn't want to be paying tax on my business and on my teaching."
She and her husband decided to work for the September 30 deadline so that if any issues arise with HMRC, then there is plenty of time to resolve them. "You need to have a cut-off point, when you file away all of last year's invoices and start afresh," says Janet.
For anyone whose business is making a profit, then setting aside money throughout the year is vital if you are to be able to pay the bill easily in January.
Remember that this applies if you are renting out a room. Under the Government's Rent-a-Room scheme, you can receive up to pound;4,250 a year tax-free.
As a general rule, basic rate taxpayers should put a quarter of all earnings into a savings account to cover their tax bill. Buying Premium Bonds is an alternative way of setting cash aside. See www.nsandi.com.
You will still have to part with money in the long run, but at least you will have a had a bit of fun with cash which, effectively, is not yours, but the Chancellor of the Exchequer's.
See www.hmrc.gov.uksa for more information