Voluntary disclosures to HMRC: are they worth it?

Voluntary disclosures to HMRC: are they worth it?

HMRC knows everything, right? Its computer system identifies mistakes, doesn’t it? So do I need to do anything if I realise I made a mistake in my tax return or didn’t tell them that I needed to send one in? I’ve heard the penalties for mistakes are big any way so why do I need to do more?

HMRC’s connect computer system is good at absorbing lots of data from sources such as Companies House, banks and tax returns. HMRC is considering obtaining more information all the time - like figures for goods and services sold via internet platforms, but it does not know everything. This is why HMRC encourages taxpayers of all types to tell it proactively if they realise that they did not pay the correct tax at any time in the past. Telling HMRC voluntarily, without being prompted is known as making a voluntary disclosure.

So is it worth making a voluntary disclosure?

Making a voluntary disclosure of all issues will stand you in good stead with HMRC. Often HMRC will not investigate disclosures as deeply as if it opens a case itself. If you make a full disclosure voluntarily then you will be charged lower tax-geared penalties than if HMRC started the investigation. Importantly it will bring your UK tax affairs up to date so that you have peace of mind and may reduce the chances of you being publicly named by HMRC if you are charged penalties for deliberate mistakes.

How is it done?

Voluntary disclosures can be made in various ways. HMRC accepts many disclosures online using its Digital Disclosure Service to access one of the disclosure facilities available such as the Worldwide Disclosure Facility.

The process involves:

  • Notifying HMRC through the website that you want to make a disclosure
  • Receiving confirmation and a registration number from HMRC
  • Telling HMRC what went wrong and why the mistakes or omissions were made
  • Calculating how much tax, interest and penalties are due
  • Letting HMRC check the disclosure
  • Before, hopefully, reaching formal agreement with them.

Alternatively, if you deliberately failed to pay the correct tax in the past then you can fill in and submit a form asking to use the Contractual Disclosure Facility (CDF), also called Code of Practice 9. Making a full disclosure through the CDF will provide protection from criminal investigations with a view to prosecution. Often HMRC will ask you to complete other forms confirming the bank accounts to which you had access and the assets and liabilities you owned at a particular date, plus a Certificate confirming that you told them about everything which needed correcting and bringing up to date.

How many years tax you need to pay depends on why each mistake occurred - HMRC generally has between 4 and 20 years to assess tax depending on what caused the mistake. Penalties may be charged if the mistake or omission arose due to careless or deliberate behaviour. For UK tax issues the penalties are up to 100% of the tax. If the income, activity, transfer or asset giving rise to the UK tax was offshore, then the penalties may be up to 300% of the tax. The minimum penalty for those who failed to meet the ‘Requirement to Correct’ offshore tax non-compliance without a reasonable excuse is 150% of the tax; reduced to 100% for voluntary disclosures. Asset-based penalties may also be charged.

Making a voluntary disclosure can be done alone, but it is better to engage an experienced adviser to guide you through the process. Working out how much tax is due, how many years’ tax must be paid and what the penalties may be is not straightforward. Our specialist advisers can help you through every stage until agreement with HMRC is reached, building in time to pay if necessary.

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