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.
“HMRC has shown it is prepared to punish even the biggest businesses for any careless errors made in their tax affairs,” said Jason Collins, a tax disputes expert at Pinsent Masons.
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.
HMRC believes that £5.9 billion in tax in 2016-17 was underpaid across all taxpayer groups purely because of careless behaviour, which, according to Jason Collins, partly explains why it is so 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.
“The largest businesses pay tens of millions of pounds on advisers in preparing their tax returns. These figures go to show that HMRC is not always persuaded that big businesses are living up to the standards expected of them,” Collins said.
HMRC collected an additional £8 billion 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 shows HMRC imposed personal fines on 115 finance directors and other senior finance executives in 2016/17 for failings in their company’s accounts.
Introduced in 2009, the Senior Accounting Officer (SAO) regime allows HMRC to issue penalties of £5,000 for failures to account for a company’s income and expenses according to requirements.
“By fining individuals, HMRC is setting an example that finance directors are not safe from fines if there are errors in a company’s tax affairs.” Jason Collins said.
55% of FTSE100 companies do not mention how they are managing the risks of tax evasion in their published documents, according to other research from Pinsent Masons.
Under the Criminal Finances Act 2017, which came into force on 30 September 2017 businesses are now criminally liable if any of their employees, agents or other third parties facilitate tax evasion whilst providing services on their behalf.