The Chartered Institute of Taxation (CIOT) has urged HMRC to permit taxpayers a limited number of defaults before they incur a penalty for a late submission. The organisation has called for this leniency because of the proposals for digital tax reporting.

The CIOT believes that taxpayers who file late submissions should receive a short extension period. They believe that this approach is more consistent with HMRC’s five principles than recent penalty regimes that the organisation has consulted on. A cumulative suspension penalty regime would also be more likely to encourage taxpayers to comply with the rules rather than a stricter penalty regime.

HMRC has not published its level of penalties, but it has said that the level of the penalty will be the same regardless of the size of the business.

CIOT spokesperson Adrian Rudd 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 CIOT is keen that penalties should be visible to both agents and taxpayers so that they cannot build up over time without taxpayers being aware of them. The tax body has also said that the penalty regime should be simple and taxpayers should have a straightforward way of appealing against any penalty.