August 10, 2012
The Forum of Private Business (FPB) is warning entrepreneurs to fully update HM Revenue & Customs (HMRC) about any changes to their businesses, no matter how small, following a report that one firm is facing a £10,000 penalty fine for not informing inspectors it had changed its name.
The firm, which the FPB says has an exemplary record of VAT payments and submitting tax returns on time, was originally hit with a fine of more than £30,000 under VAT notification liabilities contained in the Finance Act 1985 and later the VAT Act 1994.
The fine was imposed after the business changed from a partnership to a limited company — adding a "ltd" to its name — without informing HMRC, despite it retaining the same VAT number and regardless of the fact the revenue did not lose out on tax payments.
The fine has been reduced to just over £10,000 after intervention from accountants and the FPB's tax adviser Andrew Needham, of VAT Specialists Ltd. "I am concerned that this is a change in HMRC's long-standing policy of waiving its technical ability to impose this penalty fine in such circumstances," said Andrew Needham.
"If this is carried through and sets a precedent it could result in huge fines being imposed on small businesses which, in reality, have done very little wrong. It is important that all small businesses are aware they could face steep fines unless HMRC is kept fully updated — but this heavy-handed approach is the very opposite of the support that is desperately needed at this difficult time."
This issue was raised in a House of Commons debate as long ago as July 1986. The debate centred on a legal clause that would protect small traders from recently-introduced fixed VAT penalties when they had made an innocent mistake, a clause which was subsequently included in the legislation.
At the time, MP Tony Blair said: "Nobody is suggesting that there should not be compliance with VAT regulations — of course there should be. The situations with which we are dealing are those in which there has been an innocent non-compliance. If we really care about small businesses, those who go through the Lobby and vote for the new clause will be pinning their colours to the mast of small businesses, while those who do not will forfeit their right to be called the friends of small businesses."
The FPB has criticised HMRC's disproportionate treatment of small businesses and is urging all small business owners to contact its public affairs team about their experiences of HMRC at email@example.com.