10 07 2017

UK Should Support, Not Penalize New Digital Tax Filers: CIOT

The UK tax agency should adopt a light-touch approach to penalizing taxpayers who fail to meet the new digital reporting requirements that will be introduced from 2019, tax experts have said.

Under its Making Tax Digital initiative, the Government will require taxpayers with a turnover exceeding GBP10,000 (USD12,370) to maintain digital accounts.

The Chartered Institute of Taxation has said that the UK tax agency, HM Revenue and Customs (HMRC), should allow taxpayers a considerable period of time to adapt to the new requirements, with lighter penalties and filing extensions for a limited number of initial defaults.

"The Making Tax Digital (MTD) 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 of the CIOT. "It is important that the penalty sanctions for the new regime reflect this, particularly in the early years."

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. It added that penalties must be kept simple, so that they and the policy intention behind them are easily understandable to the ordinary taxpayer. It added that there must be a straightforward right of appeal against the imposition of a penalty.

Because of the significant increase in reporting obligations, the CIOT argues 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.

Rudd said: "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."