HMRC Gains From Firms' Ignorance Of Penalty Regime

by Jason Gorringe, Tax-News.com, London

06 November 2006

Two-thirds of Britain’s businesses are unaware of the penalties for the incorrect or late filing of critical tax form,s according to new research.

The bi-annual research, conducted by GfK NOP on behalf of Tenon, a business advisory firm, questioned managing directors, financial directors and senior directors of 500 small and medium-sized entrepreneurial businesses for analysis by Tenon, which is an independent think-tank of entrepreneurs.

The poll found that the level of ignorance was especially high in business leaders managing companies with a turnover of over GBP20 million. Only 7% of those surveyed could cite the fine for late submission of a P35 for example, compared to 35% of companies with smaller turnover.

"All business leaders need to wake up to the fines they could incur by ignoring tax deadlines. 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," warned Nick Parker, Director of Tax at Tenon.

It is also thought that such penalties are proving very profitable for Revenue and Customs. For example, it is estimated that the late submission of personal self-assessment tax forms in 2004-05 generated almost GBP40 million in additional revenue for the taxman.

Parker continued:

"It’s a matter of discipline. 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."

"Unless the penalties for late submission and incorrect returns are understood the incentive to file accurately on time can be lacking."

Negligent filing of the expenses and employee benefits form P11D, for example, incurs hefty penalties of up to GBP3,000, yet three out of four of the owner-managed businesses surveyed were unaware of this fine, according to the research.

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