Businesses' ignorance of tax penalties keeps Revenue’s coffers overflowing

Two-thirds of Britain’s businesses are unaware of the penalties for the incorrect or late filing of critical tax forms according to research released this week by the Tenon Forum.

This high level of ignorance could lead to businesses incurring costs unnecessarily, and provides Her Majesty’s Revenue and Customs (HMRC) with a significant revenue stream.

While HMRC is not obliged to disclose the sum of revenue generated from imposing fines for the late or incorrect submission of tax forms, available information points to a very profitable system of penalties. Income from just one tax mechanism for example - the late submission of personal self-assessment tax forms in 2004-05 generated almost £40 million for Revenue and Customs.

Commenting on the figures, Nick Parker, Director of Tax at Tenon, said "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."

"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 £3,000, yet three out of four of the owner-managed businesses surveyed were perilously unaware of this fine.

The level of ignorance was especially high in business leaders managing companies with a turnover of over £20million. Only 7 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.

The bi-annual research, conducted by GfK NOP on Tenon’s behalf, questioned managing directors, financial directors and senior directors of 500 small and medium-sized entrepreneurial businesses for analysis by the Tenon Forum.