‘Careless’ Behaviour Costs

‘Careless’ behaviour costs large businesses £59m HMRC fine

HMRC fined the UK’s largest businesses £59m in 2017 for ‘careless’ behaviour in their tax affairs, according to figures obtained by Pinsent Masons, which notes an increasingly aggressive approach to reducing the tax gap.

The law firm said HMRC imposed the fines on businesses managed by the large business directorate (LBD) for ‘failure to take reasonable care’ in ensuring all information given in tax returns is correct. The LBD oversees the tax compliance of 2,100 of the UK’s largest and most complex businesses.

Jason Collins, a tax disputes expert at Pinsent Masons, said: “HMRC has shown it is prepared to punish even the biggest businesses for any careless errors made in their tax affairs.”

If an error caused by careless behaviour is first discovered by HMRC, the minimum fine is 15% of the additional tax HMRC believes it is owed, with a maximum amount of up to 30%. HMRC issued a total of 199 fines for failure to take reasonable care in 2017, meaning on average each fine was £296,480.

Collins points to HMRC figures which suggest £5.9bn in tax in 2016-17 was underpaid across all taxpayer groups purely because of careless behaviour, which he says partly explains why it is aggressive in fining businesses.

“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,” he said.

HMRC collected an additional £8bn in tax through investigating large companies, with the penalties levied on this sum amounting to less than 1% of the tax. In contrast, across all taxpayers, the penalties levied were over 5% of the additional tax collected.

Collins said: “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.”

Research from Pinsent Masons also shows HMRC imposed personal fines on 115 finance directors and other senior finance executives in 2016/17 for failings in their company’s accounts under the senior accounting officer (SAO) regime. Introduced in 2009, this allows HMRC to issue penalties of £5,000 for failures to account for a company’s income and expenses according to requirements.