The January tax returns deadline is looming again and HM Revenue and Customs (HMRC) is clamping down on avoidance so some straightforward good housekeeping will help you avoid any slip-ups.

SmallBusiness.co.uk and Andy Hardy from TaxCalc.com demystify the tax returns process and offer top tips on how small business owners can ensure they don’t get caught out by the taxman:

Register your business with the HMRC
If you have recently started your business you have three months to inform the revenue by completing form CWF1. Failure to do so can result in a £100 fine.

You can download the form by clicking here .

Register with the HMRC website to submit your tax return online
This can help avoid processing errors, and makes payments and rebates faster for both parties

To submit your form online you will need a user ID and password. These take a week to come through so make sure you do this early

You can register to submit your return online by clicking here.

Get your paperwork in order
It is never too early to start organising. While rummaging at the back of cupboards for your Christmas decorations, hunt for important paperwork and make sure you don’t throw anything away.

Check the tax you pay
If you run a business, you will need to complete a tax return. However, your spouse or other family members on PAYE rely completely on HMRC getting it right – but does it?

A recent National Audit Office report highlights HMRC processing errors and that more than one million people paid the wrong amount of tax in 2006/07. While some people paid too little, more than 500,000 paid, on average, £290 too much.

Whether or not you have to complete a tax return, it is easy to check whether you or your family have paid too much tax by using tax software such as TaxCalc.

Don’t incur unnecessary fines
Last year, ten per cent of returns were filed after the 31 January deadline, leaving the offenders open to fines of £100. HMRC is currently reviewing the fine and it may rise significantly in the future.

Don’t panic or delay. Take advantage of the holidays to collect up all the paperwork that you will need to keep for the taxman and then set aside some time to complete the tax return.

Don’t incur unnecessary interest: plan your cash flow
The income tax for 2006/07 is due by 31 January 2008. A payment of 50 per cent of the previous tax year will also be payable on the same day in your first year of trading. In the worst case scenario this means your tax bill could be 150 per cent of the tax you. Make sure the cash is there to pay the bill.

Interest will start to run immediately on unpaid tax. In addition, there is a five per cent surcharge on all tax still owed 28 days after the deadline (i.e. the end of February). This equates to an annual interest rate of 65 per cent. This surcharge is repeated in July.

Check what tax relief you are entitled to
Don’t believe everything you are told as there are lots of myths about which expenses can be claimed for tax purposes.

Tax relief is due only for expenses that are incurred wholly and exclusively for the purposes of the business, although in practice HMRC allows proportionate claims to be made for assets like cars that are used partly for business and partly for private purposes.

You can find more information on claiming business expenses here and here

Record all income and expenses
You have a legal duty to record income and expenses relating to your business. HMRC has a useful booklet, SABK4, which explains what you need to keep and what you need to do.

You can read the information in SABK4 by clicking here.

Put money aside to pay your tax bill
Your tax bill always comes as a nasty surprise, so plan for it now. The sooner you prepare your tax return, the sooner you know how much is due and you can plan for the payment.

As a general rule, you should put aside 20 per cent to 25 per cent of your profits to ensure you can cover your tax bill.

Don’t forget to sign your tax return
A tax return that is not signed cannot be accepted.

If you submit your tax return online, the combination of your ID and password is sufficient, and you do not need a signature.

Submit your tax returns
The deadline is midnight on 31 January 2007 if filing online.

While strictly it is the same for paper filing, in practice you will avoid the penalty if you hand deliver it by 1 February 2007.

For more information on TaxCalc, visit TaxCalc.com.