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Taxmen stay mum about their nice little earner

HERE'S some news the Inland Revenue would rather like to keep from you. For the first time, the authorities would really prefer it if you ignored the tax demand which falls due at the end of this month.

In an economic lesson straight from the school of Arthur Daley, the Revenue has discovered that fines on unpaid tax bills are a nice little earner - except that there is nothing little about the sums involved.

More than 600,000 people - compared with fewer than 400,000 this time last year - have not sent in tax returns that were due last January. But the loss to the economy of the money from the delayed tax bills is being offset to a large extent by the cash the Government is receiving in fines and interest - which amounts to about pounds 120m and rising.

Taxpayers late with their returns already face an automatic pounds 100 penalty, which will rise to pounds 200 if the form is not returned by the end of this month. But it doesn't stop there. The Government is also charging interest on the debts: 5 per cent on the tax you owe from January, and a further 5 per cent compound interest next month coupled with a rolling interest on all unpaid tax of 7.25 per cent.

In all of this, Hector, that benign cartoon taxman, has been strangely silent. Early this year the Revenue ran a big campaign with Hector to alert people to the pounds 100 fine if they missed January's deadline. Now he has gone to ground: the Revenue stands to lose up to pounds 60m in fines if there is a late rush to send in forms by the end of July.

Tax experts calculate that someone owing pounds 2,000 in tax for 1997/8 would face a bill of pounds 482 in interest and fines if the return is not sent back and the money paid by the end of the month. That is a total interest rate of 48.2 per cent a year - compared with average personal-loan interest rates of 16 per cent or less.

Even then the Revenue has the power to impose extra fines once a form is a year late. Tax expert Keith Pike said: "After 12 months, the Revenue can impose penalties up to the amount of tax owing. So someone who owes pounds 2,000 in tax might have to pay another pounds 2,000 if they don't return the form by January next year."

Hywel Jones, of the Chartered Institute of Taxation, said the missing 600,000 forms showed there was still much ignorance and reluctance to face up to the new tax system.