It’s more bad news for HMRC after more than half of VAT penalties issued over the last year were overturned, according to data released under the Freedom of Information Act.

Aside from being bad news for the Revenue, it’s also rather worrying news for small businesses struggling to keep their books in order.

The official records show that HMRC reviewed 28,812 late or inaccurate VAT return cases and concluded that 16,270 were issued incorrectly. The stats are similar across all taxes with 48% of penalties found to be imposed wrongly.

There are two ways of looking at this: 1) The taxman is desperate to raise finances and so is using minute filing errors to punish the business owner, without the manpower to do this accurately and effectively. 2) It marks the success of the internal review process introduced in April 2009 to resolve tax disputes promptly without having to go to a tribunal.

The Freedom of Information appeal was made by accountants UHY Hacker Young. Simon Newark, VAT partner at the accountancy firm, said: “HMRC officers are handing out fines like traffic wardens hand out parking tickets…It would be understandable if a small percentage of fines were wrong, but these figures are staggering.”

“It’s no exaggeration to say that incorrect decisions could and do destroy businesses,” he added. “Most businesses do their best to understand a very complex tax [but] when even HMRC’s own officers struggle to understand it why should businesses suffer?”

A spokesman for HMRC said that officials were not necessarily making mistakes: “Removing a penalty after someone gives a reasonable excuse for their lateness does not mean the penalty was wrongly levied, but that we accept the customer’s excuse for the failure.”

However, it has to be the case that customs officials are under pressure to bring in greater revenues, and with an ever-dwindling workforce to make this happen, it’s entirely plausable that mistakes are more likely as a result.

For small businesses, it’s going to be even more crucial to ensure that all book-keeping and tax filing is present and correct. This way you can be sure that if there are any problems, it’s most likely a HMRC error.

On a related note, almost 1,700 businesses are appealing against penalties for failing to file their accounts with Companies House on December 31. Many are blaming the extreme weather conditions. However, Companies House have been quick to emphasise that not all areas of the country were equally affected by the weather, and so they will look into each case individually. Postal delays by themselves do not qualify as an ‘exceptional circumstance’ and thereby not a reasonable excuse for failing to file in time.