Businesses Face New Penalties By HMRC
Many businesses are unaware of the new penalties introduced in April this year if their tax returns are late, have errors or underpay their taxes.
Her Majesty’s Revenue and Custom’s (HMRC) new penalty regime affects business irrespective of their size, sector or structure and are part of their policy to ensure businesses pay their dues in full and on time – or face the consequences.
So what are the penalties for incorrect tax returns
From 6 April 2008 (for returns for this tax year), if a tax return is incorrect and the tax is understated, your business could be fined up to 100% of the understated tax.
The penalty will depend on:
- How much tax has been understated
- Why you understated the tax and
- Whether you then disclosed the error to HMRC.
If you make an honest mistake, there will be no additional penalty. But other types of behaviour can result in higher penalties:
| Failing to take reasonable care | 30% penalty |
| Deliberately understating the tax | 70% penalty |
| Deliberately understating the tax and concealing the fact | 100% penalty |
Telling HMRC of your mistake can reduce the fine but penalties won’t be reduced if HMRC has to chase you up!
From next year, the penalties regime will also apply if you don’t tell HMRC about new or altered taxable activities – for example, if you are late registering for VAT.
Buy-to-let landlords beware!
If you’re letting property, take extra care to declare your income this tax year. HMRC is cracking down on this sector, so you may find your tax returns subject to particular scrutiny.
New powers for HMRC
From next April HMRC extends its access to business records and information including inspecting any records relevant to working out a business’s tax position in advance of it making a tax return or filing its accounts.
HMRC will also be able to visit your business premises and inspect records and assets on site – and they will only need to give you 24 hours’ notice of their inspection.
An inspector will be able to ask your accountant, solicitor or other business adviser to release your files to him, without your permission.
If you don’t comply with HMRC, there will be a base penalty of £100 with additional fines of £65 per day. There is the right to appeal but clearly the penalty regime is best avoided in the first place.
Conclusion
Businesses need to be aware of HMRC’s tougher stance on mistakes on tax returns – even if you think a mistake is an honest one, you may find it difficult to persuade HMRC of that!
And remember that from next year, even if your tax return isn’t due for months, an HMRC inspector can turn up on your doorstep on just a day’s notice to look at your records.
Businesses wanting to keep on the right side of the taxman are strongly advised to keep careful and up to date financial and tax records.
For more information or advice, contact Sarah Anderson
Published 22/05/2008. The author of this article is Sarah Anderson
