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Late payment penalty fines – will HMRC have to pay you back?

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Thursday January 26, 2012 at 9:00am

January can be a gloomy month – not least for those facing the deadline for completing their online tax return – but January 2012 has brought at least a small ray of sunshine for small businesses which feel unfairly treated by Her Majesty’s Revenue and Customs.

In a precedent-setting judgement, the Tax Tribunal has ruled the Government is acting illegally by issuing late-payment penalty fines against thousands of small businesses which fail to submit their tax returns on time. Unless this ruling is defeated on appeal, it will mean up to 100,000 firms could claim refunds for the tens of millions of pounds taken by HMRC in fines.

Late reminders 

The issue is not the fines in themselves, but the failure of HMRC to remind companies their return is overdue. The Tribunal ruled it was a deliberate policy not to inform companies promptly if they had failed to file a return. Instead of sending out a letter immediately when a business misses the May deadline, HMRC waits until September. This means they can also claim four months of late payment fees in addition to the £100 late completion fine. 

According to the presiding judge this amounted to a “cash-generating scheme” and fell “very far below the standard of fair dealing expected of an organ of the state.” 

HMRC’s defence in court was it had no obligation to remind companies, and the penalties for not making returns on time were well publicised. However, the judge dismissed this, noting the penalties were intended to encourage compliance, not extract money by sending out late reminders. 

Double Standards  The stance taken by HMRC seems all the more appalling when you consider the recent scandal of cosy arrangements with big businesses. Huge companies such as Vodafone and Goldman Sachs have avoided paying billions of pounds in tax. Small businesses, however, without City lawyers and big bucks leverage have been consistently penalised. 

So, if you fell foul of the late payment accumulator you should watch this space for developments. 

Andy Parker
Chartered Accountant and Chartered Financial Planner

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here