When you run a small business, you may feel that you are swamped by outgoing payments.
From high rents to marketing costs, owning your own company can be an expensive venture, and even savvy businesses with a good grip on their outgoings may find that they are struggling as inflation rises. Right now, the last thing any business needs is to incur a hefty fine.
In the UK, the average fine from the Health And Safety Executive (HSE) for non-compliance with regulations can be as much as £150,000, making it far more costly to be non-compliant than to adhere to government legislature and guidance.
You receiving a fine is a serious consequence for your businesses; you may even have to close your business down for good or file for bankruptcy. Company directors can also suffer legal penalties for severe breaches of regulations, meaning that liberty is at risk as well as finances.
With this in mind, let’s now explore 3 of the most common fines levied against UK SMEs and outline how your business can avoid them.
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The HMRC Tax Fines Commonly Levied On British Businesses
If you are not managing your business properly, you can easily forget to file your taxes, file them late, or underpay. For many business owners, this is a result of poor organisation, and often not deliberate tax evasion.
Filing taxes for small businesses can be a complex procedure, which may trip up some small business owners – particularly if they are new to running their own business.
Multiple tax penalties can stack up over time and be devastating for SMEs, who may not have enough money in the bank to protect their assets. And it’s not just the cost of the fine itself that will affect your business – on top of the fine itself, the HMRC usually adds additional penalties and interest.
These HMRC fines can include:
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Penalty for underpayment of estimated taxes
All businesses must pay at least 90% of their current year’s tax bill to avoid incurring a fine. You must make these payments in equal instalments to avoid a fine.
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Late filing penalty or failure to file
This penalty is one of the most expensive fines that a small business may incur, and you will be charged £100 if your tax is late by 1 day, another £100 at 3 months, 10% of the unpaid tax at 6 months, and another 10% of the unpaid tax at 12 If your tax return is late 3 times in a row, each £100 penalty will be increased to £500. Even if you are unable to pay your taxes, you should always file your tax return so that you can avoid the additional fines.
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Late payment or failure to pay
In contrast to late filing or failure to file, this fine will not be charged if the outstanding tax is paid within 15 days after the due date. After day 15, the penalty is only 2% of your outstanding tax balance, but may be compounded by interest if you don’t pay after 30 days. If the tax remains unpaid on day 31, the tax penalty will accrue daily at a rate of 4% per annum on the outstanding tax amount.
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Inaccurate tax filing
If your filed taxes are inaccurate due to errors or significant underestimations, you may incur an accuracy-related penalty. Accuracy-related penalties are charged at between 0-30% if they are judged to be a result of ‘lack of reasonable care’. Thankfully, a qualified accountant should be able to easily help you to avoid this particular type of hefty fine.
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Tax fraud
As the old adage goes, crime doesn’t pay. You should always be honest on your tax filing, as tax fraud penalties can be as high as 70% on the underpayment amount, thereby inflicting a significant cost on your business.
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The Health And Safety Executive (HSE) Fines Commonly Levied On British Businesses
For serious breaches of law, The Health And Safety Executive can issue unlimited fines to your business. Alongside these potentially serious costs are some heavy personal consequences for the company and directors, including possible imprisonment and disqualification as a company director.
The Fees For Intervention compound these costs; these fees cover the expenses of an inspector’s visit and every stage of the following investigation, based on a rate of £129 per hour. Full health and safety investigations are a lengthy process and may add a significant sum of money to the total fine.
Ensuring that your company has rigorous health and safety management in place is essential for avoiding HSE fines. This should include an appointed health and safety officer – which can be internal or external – a health and safety policy which meets all legal and best practice requirements, and which undergoes regular review, written risk assessments of all potentially dangerous activities, recorded and disclosed health and safety training for all employees, development and review of safer working practices, and an accurate record and investigative process for all accidents.
Businesses must also carry out regular health and safety audits of the work environment and systems, including procedures and documentation.
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The GDPR Fines Commonly Levied On British Businesses
Following Brexit, businesses may need to comply with the UK GDPR, DPA (Data Protection Act) 2018, and the EU GDPR.
The maximum fine under the UK GDPR may be up to £17.5 million or 4% of annual global turnover, whichever is the greater sum. In addition, the maximum fine under the EU GDPR may be up to £18 million or 4% of annual global turnover, whichever is the larger amount. Together, these two fines can have a devastating impact on businesses.
The Information Commissioner’s Office (ICO) may also take several other remedial actions, including warnings and reprimands, issuing a ban on data processing (temporary or permanent), enforcing correction, restriction or deletion of data, and suspension of data transfers to third-party countries.
The most common causes of GDPR fines are data processing without a sufficient legal basis, failing to ensure information security, non-compliance with the general principles of data processing, and insufficiently meeting the rights of data subjects.
To avoid incurring fines under GDPR, businesses must have a published GDPR-compliant privacy policy, explicitly ask for valid, informed, and unambiguous consent, ensure data security for sensitive information, have a stated legitimate interest for collecting data, and practice data minimisation by regularly checking that data adequately meets your stated purpose, with a clear and relevant link to the aforementioned purpose.
Additionally, you must only collect data from your employees under the terms of your ‘legitimate interest’ as defined by the GDPR – and only then when it is strictly necessary.
Protect Your Business By Keeping Compliant
In a challenging business environment characterised by high inflation, war in Europe, the aftershocks of the COVID-19 pandemic, and the lockdown measures that resulted, any large additional expenses are unwelcome.
You can steer clear of these unnecessary penalties by diligently sticking to the guidelines and best practices outlined for your industry. Not only will this prove far more cost-effective in the long run, but it will also protect you against legal consequences being levied against you (and any other limited company directors) personally.
These issues are complex, but you can ensure you’re getting the correct advice by speaking with a lawyer who has experience with compliance matters, or with a dedicated compliance consultant.
Such measures may incur an initial expense, but are likely to pay off handsomely in the long-term, and can help you to protect the viability of your business in challenging times.
