Date of issue: 15th September 2008

CLEMENT KEYS WARNS SME'S ABOUT NEW TAX PENALTIES

Chartered accountants Clement Keys are warning businesses about the new penalty regime that is being introduced to standardise penalties across various taxes which could mean hefty bills for those who make errors on certain forms.  

The new financial penalties relate to returns and documents for VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.  

The new penalties take the form of a sliding scale and are based on what HMRC refers to as the ‘behaviour of the taxpayer’.  If the errors are put down to carelessness, the maximum penalty is 30% of the extra tax due.  However, if the errors are judged to be deliberate, the maximum penalty increases to 70%, while deliberate and concealed behaviour will be punished with a maximum penalty of 100% of the tax outstanding.  It is possible to have the penalty reduced by making a voluntary disclosure of the full amount of the error(s) and providing HMRC with information to verify your figures.  

“HMRC says it will not levy a penalty if a business can show it took ‘reasonable care’, but it has failed to provide a clear definition of what it considers to be ‘reasonable care’, leaving it to local officers to determine,” says Director of VAT Services Steven Simmonds.  “As a result, we expect this move to result in numerous appeals to the VAT and Duties Tribunals, which is not helpful – either to businesses or to HM Revenue & Customs.” Also, by way of ensuring future compliance, HMRC has the discretion to suspend collection of a penalty for up to two years, so long as certain conditions are met.

 “As far as VAT is concerned, these new penalties represent a hardening of HMRC’s attitude towards errors.  Potentially, penalties will be levied on all errors in the future and the scale of the errors uncovered will no longer be a factor in determining whether a fine is payable,” adds Mr Simmonds.“It is now more important than ever for businesses to keep accurate and up to date records, and if they have any queries regarding their tax liabilities, we recommend that they speak to their advisers without delay.”  

Although the penalties will apply from 1 April 2009, Clement Keys says they will affect tax returns and annual VAT returns commencing on or after 1 April 2008.  Quarterly or monthly VAT returns will only be affected from the period ending 31 March 2009.