HM REVENUE & CUSTOMS has been "deliberately" delaying notices to small firms informing them their returns were late, a tribunal has said.
The tax tribunal accused HMRC of using small firms as cash generators, waiting months before alerting them their returns were late - resulting in hundreds of pounds of fines, The Telegraph reports.
In his judgement Geraint Jones QC said: "It is no function of the state to use the penalty system as a cash-generating scheme.
"Any right-thinking member of society would consider that to be unfair and falling very far below the standard of fair dealing expected of an organ of the state."
HMRC said it did not agree with the tax tribunal's ruling and that it would not start to pay refunds.
A spokesman said: "HMRC does not use small business penalties to boost revenue. We do not want penalty payments either from businesses or individuals.
"We use penalties purely to encourage on-time filing and to be fair to the vast majority of taxpayers who file on time."
The tribunal ruling comes just months after the taxman was accused of cosying up with big businesses. A House of Commons Public Accounts Committee found HMRC officials had failed to collect £25bn from big businesses.
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