HMRC have introduced a complete overhaul of their powers in relation to compliance of the tax system by business owners. These powers came into effect from 1 April 2009.

The new penalty regime relates to Income Tax, Capital Gains Tax, Corporation Tax, VAT, PAYE, National Insurance Contributions and CIS.

Whilst the new regime can drastically increase penalties, it is our view that the ideology behind it is the right one in that it seeks to assist taxpayers who make every effort to comply, whilst coming down hard on those who abuse the system. With the public coffers at such low levels, it will be much more beneficial for HMRC to target the abusers as this will result in substantially higher tax takes.

It will also be a more consistent approach giving taxpayers more certainty than the previous system.

However, it remains to be seen how this will be applied in practice as, for example, it is still a grey area between mistakes that are ‘careless’ and ‘deliberate’ action and as you can see from the table below, this can be a costly distinction:

Unprompted Disclosure - Penalties

Type:    Mistake    Careless    Deliberate    Deliberate and concealed

Max       0%             30%             70%                100%

Min        0%              0%               20%                30%

Prompted Disclosure - Penalties

Type:    Mistake    Careless    Deliberate    Deliberate and concealed

Max       0%             30%             70%                100%

Min        0%             15%              35%                50%

Penalties are based on the potential lost tax revenue.

As can be seen from the table, there is no charge where a person makes a mistake but takes reasonable care.

Penalties may be reduced by:

- Telling HMRC voluntarily of any errors or omissions;
- Helping HMRC; and
- Allowing access to records and other information

Any reduction is calculated as a percentage reduction between the maximum and minimum penalty.

From the basic summary of the new regime, it is apparent that business owners need to protect themselves and ensure that they take all reasonable steps to ensure that their tax affairs are up to date, correct and complete.

For those who operate their business through a limited company, Companies House have also introduced an increase in penalties for late filing of company accounts which is summarised below:

Penalty

Late but within one month £ 150.00
Between 1 – 3 months late £ 375.00
Between 3 – 6 months late £ 750.00
More than 6 months late £ 1,500.00

From 1 February 2009

In addition, these penalties are doubled if there was a late filing penalty the previous year (where the previous year started on or after 6 April 2009).

This could mean late filing penalties of up to £3,000.00 for persistent late offenders.

It is therefore of utmost importance that business owners ensure that their taxation affairs are up to date, correct and complete, and that statutory duties are complied with. Failure to do so can be a costly and stressful experience.

If you would like to find out more about how Dormer Finance Ltd can help you with business compliance, whilst seeking to minimise your tax payments, please contact us to arrange a free consultation.