File tax returns online or face a fine

Increasing concern is being voiced by industry at the decision by Chancellor Gordon Brown to force all companies to file their tax returns online or face hefty fines.

The move is being introduced as part of the Finance Bill, due to begin its progress through the committee stages in the House of Commons tomorrow.

A spokesman for the Federation of Small Business (FSB) said the government didn't realise how onerous the provision would be for many small businesses. He said: "There are many companies that are still completely computer illiterate - and don't want to be literate.

"The government doesn't understand the scale of the problem it's giving itself in terms of training these people up."

The government plans to make electronic filing of tax returns compulsory for large firms (250 plus employees) by 2005, and for medium-sized firms (50-250 employees) by 2006.

Every business will have to file online by 2010, saving the government an estimated £35m a year.

Companies who fail to adopt the new procedures will incur a penalty of up to £3,000.

A spokesman for the British Chambers of Commerce said: "Enforcing businesses to adopt this with a big fine is not helpful. While most companies will be happy to do this, there is no 'one rule fits all', and some businesses just won't see it as viable.

"We need businesses to learn to file online because they see the benefits, rather than have it imposed on them by a draconian law."

The FSB added there would always be a hardcore of the smallest businesses, such as carers, or corner shops and blacksmiths, for whom the benefit of investing in computer technology of any kind was questionable.

A government spokeswoman today admitted that under the plans these companies would have no choice but to buy the IT and learn how to use it. "Anyone who uses PAYE will have no choice," she said.

However, she said the government will be lenient in handing out fines to firms.

She told silicon.com: "We will only apply the penalty when firms are consistently wrong and fail to respond to several warnings."

The government will also be introducing incentives for firms to file electronically before the cut-off date. Small businesses will be given £250 if they file online from 2005.

The government was not able to confirm whether the system would be open to users of non-Windows computer users.