Craft bakers hit by tough new fines are being urged to take their case to Chancellor George Osborne.

HM Revenue & Customs is calculating penalties for firms that paid PAYE/NI late during the 2010-11 tax year, and one craft baker believes the penalty does not fit the crime.

PAYE has to be paid by the 19th of the month following the month in which the deduction was made and fines were brought in so businesses don’t gain a financial advantage in paying late.

However, the baker, who doesn’t want to be named, said if a company had a very small PAYE scheme and was paying on average £500 per month but paid two days late every month - probably because its customers were slow in paying - they would receive a £220 bill.

“The benefit to the company in the saving of overdraft interest is approximately £14. So, in this instance HMRC wants about 16 times in penalties to the amount of the advantage.”

For a larger company paying an £15,000 PAYE bill monthly, but paying 20 days late each time, its annual advantage would be about £345, while the actual penalty would be £6,600 - 19 times the advantage.

He believes that to improve cash flow, businesses will look at redundancies so they can meet their liabilities and avoid the penalties. “I’ve got no problem with them bringing in a fine but the Revenue makes loan sharks look positvely philanthropic.”

Gill Brooks-Lonican, CEO of the National Association of Master Bakers, said it was prepared to campaign on the issue if other bakers came forward with the same problem. “Some people might not even be aware of the fact there are penalities because it’s new legislation, so if we get more information, we can write to the Minister,” she said.

An HMRC spokesman said the amount of PAYE paid on time in the last tax year was up on previous years.
“The penalties were consulted on extensively with relevant stakeholders and representative bodies. As well as a late payment penalty being issued, interest will also be charged. This is to ensure that HMRC and customers are recompensed for losses of funds.”