HMRC has been looking to modernise the way companies send in their tax returns for some time. The Making Tax Digital (MTD) is the initiative they have established to try and enable this.
But an industry body is calling for some flexibility when the system is introduced to avoid unfair penalties for those submitting. This would include personal service company contractors who choose to submit their tax returns themselves, rather than through an accountant.
Under the Making Tax Digital regime, companies would be required to keep digital tax records, and send in quarterly updates to HMRC.
Concerns have been raised however around the extra burden converting to this new world of digital taxation will bring for certain companies. As such, the government recently extended the time by which companies would need to do their taxes digitally to 2019.
The Chartered Institute of Taxation (CIOT) has now called for a limited number of defaults to be allowed before a company is penalised for late submissions. CIOT believes this can be achieved by allowing taxpayers a short extension period on those particular occasions.
According to the CIOT, a ‘cumulative suspension’ penalty approach will lead to higher levels of compliance and be a fair response to the new taxing system.
The penalties for late tax returns haven’t been revealed by HMRC as of yet, but they have confirmed that a fixed penalty would be in place. If this is a fairly high amount as seems likely, contractors could be put in a difficult place, as the hit would be far greater on them than say a multinational corporation.
CIOT has recommended to HMRC that penalties are visible to taxpayers and say they should not accumulate without the taxpayer becoming aware of them.
The tax body also says that penalties must be kept simple and easily understandable to the ordinary taxpayer. The right of appeal process should also be a simple one, according to the CIOT.
“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,” said Adrian Rudd, CIOT spokesperson on MTD. ”It is important that the penalty sanctions for the new regime reflect this, particularly in the early years.