Call for limited extensions for late filers under new tax system

This can be achieved by allowing those taxpayers a short extension period on those particular occasions.

The CIOT says such an approach to penalties is more consistent with HMRC’s five principles for penalties than alternative penalty regimes that HMRC recently consulted on.

The CIOT has said that this ‘cumulative suspension’ penalty regime is more likely to encourage compliance, penalise non-compliance and be a proportionate response to late filing.

HMRC is yet to publish details about the level of the penalties, although it has confirmed that this will be a fixed penalty, irrespective of the size of the business.

Adrian Rudd, CIOT spokesperson on MTD, said: “The Making Tax Digital project will present significant technological and logistical challenges to the many small businesses and landlords which are not currently maintaining digital records or interacting with HMRC on a frequent basis. It is important that the penalty sanctions for the new regime reflect this, particularly in the early years.

“The suspension model most closely complies with HMRC’s penalty principles, which include that penalty regimes should be designed from the taxpayers’ perspective, primarily to encourage compliance and prevent non-compliance, and that penalties are not to be applied or seen to apply with the aim of raising money.”

In its submission to HMRC, the CIOT recommends that penalties are visible to taxpayers (and their agents) and must not accumulate without the taxpayer becoming aware of them. The tax body also said that penalties must be kept simple, so that they and the policy intention behind them are easily understandable to the ordinary taxpayer, and there must be a straightforward right of appeal against the imposition of a penalty.

Mr Rudd added: “There is a heightened risk that people with several forms of income will regularly face fines for lateness once the amnesty period is over. Take the example of a taxpayer who is VAT registered, has a trade and has a buy-to-let property. They may have to get used to meeting up to 15 MTD deadlines year, over and above their existing obligations under Real Time Information etc.”

Because of the significant increase in reporting obligations, the CIOT argues that the penalty amnesty for MTD should be similar to the three-year penalty amnesty for the smallest businesses when Real Time Information (RTI) was launched in 2013. Under RTI, employers and pension providers send HMRC information each time they pay their employees.