Business 'clueless' over tax penalties

A staggering two-thirds of British business owners are unaware of the hefty penalties they face if they file their tax return late or with mistakes, a new study claims.

The Tenon Forum warned such a “high level of ignorance” among owner-managers is providing Her Majesty’s Revenue & Customs with a “significant revenue stream.”

Evidencing the claim, the business advisor said that the late return of personal self-assessment forms in 2004-05 alone generated almost £40million for the tax authority.

The appeal for business to “wake up” to the potential tax penalties is even more urgent in light of disclosures obtained by Freelance UK that state the penalties will soon be even higher.

According to a HMRC consultation document, a blacklist of the worst tax offenders is being considered, in addition to incoming tax penalties higher than the current late-filers fee of £100.

Some positive news for freelancers and owner-managers is that the smaller the business – the less likely it is they will be in the dark about the loss they could incur, Tenon’s study showed.

“Even though it may seem like more red tape, ensuring compliance with tax deadlines is a simple way for entrepreneurs to avoid additional, unnecessary expenses as they continue to grow their businesses,” said Nick Parker, the group’s director of tax.

“Start-ups and smaller businesses are playing a dangerous game if they aren’t fully aware of the strict deadlines and penalties set down by HMRC. For one thing, they could seriously interrupt cashflow at a crucial point of growth.”

In the research, which polled micro firms up to mid-sized ventures, the level of ignorance was especially high in business leaders managing companies with a turnover of over £20million.

Just seven per cent of those surveyed could cite the fine for late submission of a P35 for example, compared to 35 per cent of companies with smaller turnover.

Mr Parker reflected: “While it’s not surprising that managers of larger companies, who are likely to have specialist accounts staff, aren’t aware of these details, at the very least they need to comprehend the scale of the risk to ensure that their staff make tax returns a priority.”

Meanwhile a spokeswoman for HMRC said the value of the higher and incoming tax penalties was yet to be finalised.

Under the new regime, there will be “no penalties for mistakes or misinterpretations after reasonable care has been taken,” the spokeswoman said.

“In addition it is “possible” there will be “a graduated penalty, which reflects the seriousness of the taxpayer's behaviour.

“Any penalties would be substantially reduced or even waived if the taxpayer makes a full disclosure in order that the correct tax can be calculated,” the spokeswoman added.



 

6th November 2006

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