Sainsbury’s Bank reveals a whopping £46.75 million in personal loans was taken out between April 2003 and March 2004 in order to stave off the taxman.

Around 5,500 people across the UK took out loans to pay their tax bills. However, the bank warns that over £18 million of this is incurring some of the highest rates of interest because many people won’t have shopped around for the best deal. Instead, they choose loans from high street banks which are typically among the most expensive available.

Steven Baillie, loans manager, Sainsbury’s Bank said: “We have seen an increase in the number of people taking out personal loans to pay the tax man, including one person who had to borrow £25,000.”

“It’s worth heeding the tax deadline because otherwise you could face interest charges of 6.5% on outstanding tax or a 5% surcharge at the end of February on unpaid debts.”

The bank advises that in some cases simple planning could help avoid hefty tax bills. Indeed, nearly 900,000 people faced fines of £100 for failing to submit last year’s self assessment tax returns by the 31 January deadline, netting the Inland Revenue up to £100 million.

People can also reduce their tax liabilities by, for example, making sure they use their annual ISA allowances.

To help avoid any nasty surprises from the taxman this year, the bank offers the following advice:

• If you find yourself needing a loan to finance a tax bill make sure you shop around for a competitive rate of interest.
• Make sure you plan well ahead and don’t put it off until tomorrow.
• Be organised and keep all records.
• If you’re not sure what to do visit the Inland Revenue’s web site at www.inlandrevenue.gov.uk/ - you can even fill in your applications online.
• Check out free tax guides available online by searching for ‘tax advice’.