Bill Jamieson: Whom the government taxes is first made mad

How perverse life is. Having spent the last few weeks bombarded by experts on where and how to invest in 2012, reality for investors delivers an almighty kick. It’s time to panic sell.

We are in tax reckoning time, the darkest period of the year. Ahead of the tax payment deadline on 31 January, the air is blue with curses as we wrestle with that Deadly Reckoning – how much tax we have to pay by the end of the month, and how much, if any, we can mitigate by a scrambled contribution into a pension plan.

There’s nothing much “considered” about it in terms of balanced investment decision-making. For the self-employed or anyone with income outside of the PAYE system, this is the Black Hole, the Descent into Hades, because it’s not one chunky amount we may have to contend with but two – one for the gang of government leeches which runs the country and another into the pension pot to mitigate the destruction of our wealth into that black anti-matter of Her Majesty’s Revenue & Customs.

If only our name was Vodafone or Goldman Sachs, we could just take the taxman out for a slap-up lunch at the Witchery, bamboozle him with large gins, call it quits over the Chardonnay and walk out into the crisp January air with barely a ruffle on our finances.

Instead, a black rage descends as we start on the kitchen table and the southern slopes of the Deadly Reckoning. It doesn’t matter if you have an accountant. All the bits of paper have to be assembled and the scrambled calculations done on how big the tax bill is likely to be. Calculators burn into the small hours as we wrestle with the numbers.

Let’s start with the small ones – the bank interest statements. Such has been the effect of ultra-low interest rates that useful earning time is soaked up totting up pathetically small sums on bank interest.

I have three savings accounts where the annual interest on each did not even come to more than £4 and on one I am adding 12 monthly interest payments of between 10p and 15p.

Then there’s the piles of payments and receipts going back as far as April 2010 that have been flung in a drawer and now have to be sorted, collated and stapled.

There’s the dividend vouchers (where we’re lucky) and interest statements from the corporate bond and fixed interest funds.

After that, it’s the cheerful wrestle with capital gains tax computations. Such has been the state of the markets few need worry overmuch on this score. But the chargeable assets acquired have to be listed with the chargeable assets sold. And the regular monthly savings plans and dividend income re-invested? Yes, these too, the savings out of our already taxed income lined up for a further butchering in the tax shredder.

This is what makes January the bleakest period of the year, with the outstanding tax cheque sent off to HMRC, not on 31 January but several days before to allow for the post and the cheque to be cleared. If you fail, add on the piratical BACS payment of £25 to any calculus you have made.

This is what brings us to the Great Panic Sell. What carefully nurtured investments must we now cash in? The corporate bond funds now yielding pathetically little? Those defensive shares and trusts we carefully amassed? Or is it time to bite the bullet on those cyclical shares currently showing a paper loss of 40 per cent or more? It’s Bite the Bullet time whichever choice you make.

Long before all this is finished, you have come to the conclusion that extra earnings are just not worth this hassle, nor those savings and investment plans. We now resolve to keep every possible allowable receipt, starting with the calculator batteries and a board and lodging charge for the cat.

Amid all this, the logic of an emergency pension contribution is still compelling. A £15,000 transfer will attract 20 per cent tax relief, or £3,000, taking the investment up to £18,000 gross. You can also claim a further 20 per cent relief through the self-assessment tax return, thus reducing the tax bill by £3,000. The total relief comes to £6,000.

That only leaves the small question of selling up to make this payment and to do so very quickly indeed. For investors this can be a complex exercise to ensure you are not left over or under weight in certain sectors.

Such is the current outlook for equities that a strategy of “risk off” may appeal, though it is painful to reduce investment holdings built up for the long term. However, deciding where to invest the extra pension plan money may provide an opportunity to rebalance and make good the asset allocation damage suffered in the Great Tax Sell-Off.

What a demented whirligig, all to keep a bloated government in the style to which it has long grown accustomed at our expense. Only a very few get to sort out their tax bill over a high-end lunch with the taxman. For the rest of us, the nearest we will get over the next two weeks is selling The Big Issue outside the Witchery.