ACCOUNTANTS have warned that HM Revenue & Customs will be taking a tough line with taxpayers who make a mistake filling in their tax returns this year.

Taxpayers are being urged to deal with their returns as soon as possible and be extra vigilant in checking what they owe, especially as a threatened Revenue strike could cause chaos as the self-assessment deadline looms.

About 9m people must submit their tax returns by January 31 every year, but millions leave it until the last moment, increasing their chances of making an error.

Nearly 3m people required to file a 2006-7 tax return have yet to do so despite the threat of an automatic £100 fine if they don’t get it in on time.

Make a mistake and it could trigger an investigation and hefty penalty. In rare cases where the Revenue proves that a taxpayer knowingly committed fraud, it has the power to impose a penalty worth double the tax owed.

Even an innocent mistake can be punished. The more common charge of negligence after a discrepancy is spotted can trigger a penalty of up to 100% of the tax bill.

Every year the authorities target groups they think are routinely flouting the rules. In the past, builders and eBay traders have faced special scrutiny. This year, accountants say that property investors and lawyers are being singled out.

However, it isn’t just taxpayers that make mistakes. The Revenue admitted last week that half a million people were in danger of being unfairly hit by self-assessment penalties because it forgot to issue payment statements, as planned, in December.

Taxpayers who submitted returns before September 30 should have received a statement last month telling them how much tax they owe.

The Revenue has only just discovered that some of the statements were not issued, while others were sent with a blank payment slip. It said last week that it was rushing out new statements, giving those affected less than two weeks to make a payment or face a fine.

Accountants are worried that even more mistakes will occur as the deadline approaches, especially if a strike by Revenue staff scheduled for January 31 goes ahead.

We asked the experts for the pitfalls to watch out for.

Property crackdown

The taxman has launched a crackdown on hundreds of thousands of amateur landlords, determined to get a slice of profits and rents.

So far, the Revenue has concentrated on making sure that buy-to-let investors simply pay tax on their rent and capital gains. Now experts say they are getting more picky.

Mike Warburton at accountant Grant Thornton said: “The Revenue has spotted that some landlords who have a capital-repayment mortgage have been underpaying. A lot of investors misunderstand the rules and should try to rectify the mistake before the taxman catches up with them.”

With a repayment loan, part of your monthly mortgage payment goes towards paying interest while the other slice is used to repay the capital.

Buy-to-let borrowers can claim tax relief to reduce the tax they pay on their rental income, but only on interest payments. The Revenue is concerned that many landlords with repayment loans are breaking the rules by claiming relief against the whole amount – therefore underdeclaring the tax they owe.

Someone with a £100,000 repayment mortgage over 25 years would repay £675 a month at 6.5%, but only £540 of that goes towards paying interest. The other £135 is a capital repayment and should not be included when claiming tax relief against rental income. To check how much of your payment goes towards interest, contact your mortgage lender.

Pension underpayments

The government offers 22p for every 78p contributed to a pension. A higher-rate taxpayer saving into a personal pension can claim a further 18p, but many put the wrong figures on their tax return.

You are supposed to include the amount you paid into a pension with basic rate tax added. If you paid £780 you should enter £1,000. You then receive higher rate relief worth £180.

Many people enter the amount they paid, without basic rate tax, and therefore claim insufficient relief. Putting £780 into the box by mistake would mean you would only receive £140 in relief – a £40 loss.

Above the law

Barristers are under the spotlight because the taxman thinks they have been fiddling their expenses, including the costs of cleaning court gowns and wigs.

Most are self-employed so can offset expenses against tax. Many claim for using their home as an office and for dry cleaning court clothes.

Angela Beech at accountant Blick Rothenberg said: “Reve-nue & Customs has been issuing letters to barristers. This is usually a signal that it is about to launch an inquiry.”

Tax code mix-up

The Revenue has been encouraging taxpayers with savings and investment income or a total bill of less than £2,000 to pay what they owe through their tax code.

Many people do not like the idea, preferring to pay their tax in one lump sum, and on the tax form you are able to opt out of tax code payments.

Following a blunder at the Revenue, however, it has ignored the wishes of thousands of people. They ticked the box saying they wanted to continue to pay tax through the self-assessment system but have been told that what they owe will be collected through their tax code instead.

Last week it was sending out letters telling those affected who still want to pay by lump sum to contact them urgently. Those who do nothing will have any tax they owe deducted through their code from April.

If you are worried you should ring the Revenue helpline on 0845 9000 444.

Miscalculation

If you allow the Revenue to work out your bill, make sure you check it. Mistakes are often made when inputting figures into computers that calculate tax bills.

The Revenue says that 96.5% of calculations made last year were accurate. But that means more than 300,000 bills were wrong.

The deadlines

January 31: deadline for completing 2006-7 tax return

February 1: £100 penalty for missing deadline

February 28: automatic 5% charge on outstanding tax

April 6: start of new tax year

July 31: a second £100 penalty for no January return

September 30: deadline for submitting paper form if you want Revenue to work out how much you owe for 2007-8

October 31: deadline for paper tax return for 2007-8