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A new, less flexible tax penalty system will hit businesses that break the rules even harder, warns a specialist adviser.

The fresh regime is bound up in detailed legislation that will deprive tax inspectors of their traditional discretion, according to Alan McCann, a tax director at accountants and business advisers DTE.

Due to come on stream in 2008, the system includes a set menu of infringements and a sliding scale of penalties that hinge on the seriousness of a situation and how it comes to light.

“The potential problem for businesses is that this statute-based system removes the room for manoeuvre that has enabled inspectors to use their judgment and experience in determining the nature and extent of a perceived inaccuracy,” says Manchester-based McCann.

“It was brought in mainly because the government believes there were insufficient distinctions in the behaviour and attitudes of company directors who broke the rules, for example the term ‘negligence’ was not well understood.”

There are three categories, reflecting in the severity of various infractions. ‘Careless’ action involves a standard penalty of 30 per cent of the lost revenue, while ‘deliberate but not concealed’ activities result in a penalty of 70 per cent of unpaid liabilities, and ‘deliberate and concealed’ behaviour brings a penalty representing the total amount of unpaid tax.

In addition, the system takes account of whether a disclosure to the tax man was ‘prompted’, or ‘unprompted’.

“This means that a business that voluntarily comes forward, following a careless inaccuracy will typically be treated with the greatest leniency, while a company that has been caught deliberately breaking the rules and attempting to cover up will be dealt with most severely,” explains McCann.

The new penalty system covers inaccuracies in a range of areas including income tax, VAT, capital gains tax, company tax, PAYE, and the new construction industry scheme.

“The system will not effectively kick in until 2009, when tax returns and other documents dating from 2008 will be open to inspection by HMRC,” adds McCann. “However, it is important in the meantime for companies to ensure that their affairs are in order because the incoming penalty system will no doubt prove harsher and harder to manage from a compliance point of view.”


Media inquiries: David Chadwick (Public Relations) on 01204 497085, mobile 07905 859686.

Notes to editors: DTE Business Services Group is a UK top 35 accountancy and advisory firm – the country’s fastest-growing – with a turnover of £15m. The firm employs over 200 staff and delivers a full service offer from offices in Manchester, London, Birmingham, Bury and Blackburn.

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