£59m in fines for UK's largest businesses

HMRC has hit some of the UK’s largest businesses with fines for ‘careless behaviour’, totalling £59m in the past year, according to Pinsent Masons.

The firm’s report stated that “HMRC imposed the fines on businesses managed by the Large Business Directorate (LBD) for ‘Failure to Take Reasonable Care’ to ensure all information given is correct.”

The LBD has been responsible for overseeing the tax compliance of 2,100 UK businesses – businesses that have proven to be some of the largest and most complex. Fines levied for ‘careless behaviour’ can therefore prove to be very costly.

Pinsent Masons’ report explained that “if an error is first discovered by HMRC, the minimum fine is 15% of the additional tax HMRC believes is owed, with a maximum amount of up to 30%.”

Jason Collins, partner at Pinsent Masons, said: “HMRC really does see carelessness relating to tax as a multi-billion-pound problem. As a result, it is prepared to levy what can often be heavy fines on businesses. Over the past decade, HMRC has taken an increasingly ‘no holds barred’ approach to minimising the tax gap and is always on the hunt for additional sources of revenue.”

In 2017, HMRC issued a total of 199 fines for failure to take reasonable care. Each fine averaged a value of £3.1m. These fines were directed at the larger businesses, thus proving Collins’ conclusion that “HMRC has shown it is prepared to punish even the biggest businesses for any careless errors made in their tax affairs.”

The international law firm has gone on to highlight the fact that the usage of high-quality tax advisors to help companies prepare their tax returns does not prevent HMRC from imposing a fine if circumstances call for it.

HMRC believes that £5.9bn in tax for 2016/17 remains unpaid across all taxpayer groups due to examples of ‘careless behaviour’.

Collins continued: “HMRC sees large businesses as responsible for a significant segment of the tax gap. As a result, it is prepared to levy heavy fines on businesses for a failure to take reasonable care with their tax affairs. Over the past decade, HMRC has made a concerted effort to minimise the tax gap and is always on the hunt for additional sources of revenue.”

According to Pinsent Masons’ research, HMRC personally fined 115 Finance Directors and other senior finance executives in the last twelve months, due to failings in their company accounts. This, paired with ongoing investigations of large companies, this has led to HMRC collecting an additional £8bn in tax.

The Senior Accounting Officer Regime (SAO) which was first put in place in 2009 has allowed HMRC to issue £5,000 penalties for failures shown in a company’s listed income and expenses.

Collins concluded: “The largest businesses pay tens of millions of pounds on advisors in preparing their tax returns and it can already prove to be a huge burden. HMRC has stated that it understands that genuine mistakes may be made and does not expect perfection. But these figures go to show that HMRC is not always persuaded that big businesses are living up to the standards expected of them.

“The difference can be explained by the fact that large businesses are less likely to make careless mistakes than other taxpayers, and much less likely to engage in the behaviour which attracts the highest penalties, such as fraud. In most cases, the additional tax comes down to a difference in interpretation. But some campaigners will see this as going soft on large business and ask why they are not being penalised more heavily if they are found to owe such large sums in additional tax.

“By fining individuals, HMRC is setting an example that finance directors are not safe if there are errors in a company’s tax affairs.”