Under the Revenue’s ‘Real Time Regulation’ (RTI) requirements, information about tax and other deductions under the Pay As You Earn (PAYE) system is required to be transmitted to HMRC by the employer on or before each time an employee is paid – even if this is daily or at irregular times.

Tax campaigners have highlighted that RTI penalties being used as a revenue raiser for HMRC is of major concern.

Anthony Thomas, chairman at campaign group LITRG, said: “The requirement to provide PAYE information in ‘real time’ will lead to substantial difficulties for many small employers. Penalties for those who fail to comply must be proportionate and the penalty framework simple.

“The regime must give employers time to get used to the obligations of RTI and this is likely to take a minimum of two years. It is vital that no penalties are charged at all in the first year and HMRC should adopt a ‘light touch’ approach to the application of penalties in the following year.

HMRC began piloting RTI in April this year, with a group of around a dozen employers who volunteered to take part in an initial pilot.

All employers will be required to submit information using RTI by October 2013.

Campaigners also state that an overly aggressive penalty regime for late filing could lead to employers submitting less accurate returns.

Thomas added: “Special consideration must be given to those who are ‘digitally excluded’. HMRC need to provide more information about how they will deal with the small number of employers who will be allowed to submit RTI ‘returns’ on paper.

“In addition to these employers, we are concerned that there are other genuinely digitally excluded employers, who, despite help from HMRC’s ‘Assisted Digital’ package, might still fail to get online. Penalising these people would achieve nothing bar encourage other non-compliance and result in reputational damage for HMRC.”