Small firms face 200pc tax fine hike

FINES for small businesses who fail to pay their taxes on time could be tripled under ‘draconian’ plans from the taxman.

At present, small businesses face a fine worth 5 per cent of their outstanding tax bill if they pay too late.

But HMRC wants to bring in a ‘sliding scale’ that would see the penalty charge increase to a maximum of 15 per cent.

This would be the equivalent of a 200 per cent rise in the fine.

The changes emerged as part of a shake-up which will see most businesses having to update HMRC every three months on tax returns, not only once a year as at present. This move has angered many in the business community because the quarterly submissions will create more chances for people to miss deadlines and therefore face fines.

The proposed rules will prove controversial at a time when global giants such as Google are accused of paying only derisory levels of tax in the UK.

Experts warned small businesses were being treated like a ‘cash cow’ and said that in the wake of the Brexit vote, the Government should be trying to free them of regulation.

Under existing rules, businesses which fail to pay their tax in time face a penalty worth 5 per cent of their outstanding bill, charged at 30 days, six months and then 12 months.

But ministers are considering a tougher regime, with a sliding scale whereby the penalty rises the longer a tax bill is left.

This would mean a penalty of 4 per cent at 30 days, 10 per cent after six months and 15 per cent after 12 months.

The new fines would affect failure to pay income tax, National Insurance, corporation tax and VAT. The fine at the moment is a flat-rate £100 fine for missing the deadline, even a day late. No figures have been put on the proposed level of the fine under the new system.

Anita Monteith, of the Institute for Chartered Accountants, said the new system, which comes into force in 2019, would treat small businesses as a ‘cash cow’.

She added: ‘Making mistakes will become much more expensive. It is a draconian measure and you will end up with many more people being punished.’

A HMRC spokesman said: ‘As a result of the proposals, only repeat offenders will face a penalty.’