HMRC “deliberately” waiting months before informing small businesses that haven’t filed tax returns

The First Tier Tax Tribunal has ruled that HM Revenue and Customs (HMRC) has been “deliberately” waiting months before informing small businesses that they have not filed their corporate tax return in order to allow their late tax return penalty fines to mount up…

HMRC has been found to be illegitimately running up late corporate tax return penalty fines for small businesses by waiting months before notifying them that they have failed to correctly submit a tax return.

If the First Tier Tax Tribunal’s judgement is upheld on appeal then it is thought that 50,000 to 100,000 small businesses may be eligible for a refund of late corporate tax return fines paid, said to be worth millions of pounds.

Judge Geraint Jones, QC, said:

“It is no function of the state to use the penalty system as a cash-generating scheme. We have no doubt that any right-thinking member of society would consider that to be unfair and falling very far below the standard of fair dealing expected of the organ state.”

The discovery by the Tax Tribunal adds to recent criticisms of Her Majesty’s Revenue and Customs that have been under fire for letting large companies – such as Goldman Sachs and Vodafone – off with large tax bills.

In the “cash-generating scheme” HMRC have not been giving small businesses immediate notification when they have missed the end of May tax return deadline. Instead a computer generated letter is being sent out in September to businesses that have failed to file a corporate tax return by the May deadline.

HMRC sending notification letters for failing to file a corporate tax return, four months after the deadline date, means recipients are hit for the first time with an £100 fine for late completion and £400 in late payment fees (£100 for each month).

When questioned HMRC said they are “not obliged” to send out reminders to small businesses who fail to submit corporate tax returns on time and that penalties for missing the May deadline have been widely publicised.

Judge Geraint Jones, QC, disagreed with HMRC’s defence and said:

“There can be no logical reason whatsoever for HMRC to delay sending out a penalty notice for four months so that, in effect a minimum penalty of £500 will be levied unless the taxpayer has unilaterally realised that it has failed to undertake the necessary filing.”

A spokesperson for HMRC denied the claims and refused to comment on the ongoing tribunal case, but said:

“The vast majority of employers file their returns on time and with the current PAYE system , the timetable for issuing penalties for outstanding returns is designed to allow a reasonable period for HMRC where there is no return due.

“Individual circumstances are fully taken into account in deciding on ‘reasonable excuse’ for missing a deadline and we apply the rules fairly.”

As of late it seems that HMRC are undermining the general public’s faith in the fairness of the tax system and the Revenues promise to support small businesses in the UK.

Kevin Kinsella Jnr, of KinsellaTax, said:

“It is frustrating when we are asked to look at £300 fines in order to appeal. It reminds me of paying a £30 parking ticket, although you are in the right the cost of defending it is substantially more. It really is a blue blank liberty that these sorts of penalties are allowed.”

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