The Forum of Private Business (FPB) is warning entrepreneurs to fully update HM Revenue & Customs about any changes to their businesses, no matter how small, following a report that one firm is facing a £10k fine for not informing inspectors it had changed its name.

The firm, which did not want to be identified but which has an exemplary record of VAT payments and submitting tax returns on time, was originally hit with a fine of over £30k under VAT notification liabilities contained in the Finance Act 1985 and later the VAT Act 1994.

The fine was imposed after the business changed from a partnership to a limited company without informing HMRC, despite it retaining the same VAT number and regardless of the fact the revenue did not lose out on tax payments.  The fine has been reduced to just over £10k after intervention from accountants and the Forum’s Tax Adviser Andrew Needham, of VAT Specialists Ltd, but work is ongoing to further reduce the penalty.

“I am concerned that this is a change in HMRC’s long-standing policy of waiving its technical ability to impose this penalty fine in such circumstances,” said Mr Needham.  “If this is carried through and sets a precedent it could result in huge fines being imposed on small businesses which, in reality, have done very little wrong.”

The Forum has criticised HMRC’s disproportionate treatment of small businesses while large companies routinely get away with widespread tax avoidance, and also its all-round poor levels of service.