Voluntary disclosures to HMRC: are they worth it?
Voluntary disclosures to HMRC: are they worth it?
HMRC knows everything, right?
HMRC is good at absorbing lots of data from sources such as Companies House, banks and tax returns, and they will also obtain figures for goods and services sold via internet platforms. But HMRC does not know everything - this is why HMRC encourages taxpayers of all types to tell them if you think you have underpaid tax in the past. Telling HMRC voluntarily, without being prompted is known as making a voluntary disclosure.
What happens if you make a voluntary disclosure?
Making a voluntary disclosure will stand you in good stead with HMRC. If you make a full disclosure of any previous underpayments voluntarily then you are likely to 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. A voluntary disclosure is designed to avoid HMRC taking criminal action to remove lost taxes.
How to make a voluntary disclosure to HMRC
You can make voluntary disclosures in various ways. It is important to seek expert advice from a specialist about which HMRC process is best for your specific circumstances. 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
- 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 a criminal investigation 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 of Full Disclosure confirming that you told them about everything which needed correcting and bringing up to date.
How far back can a voluntary disclosure go?
How many years tax you need to pay depends on why each mistake occurred - HMRC generally has 4, 6 and 20 year time limitations to assess tax depending on what caused the mistake. For disclosures relating to offshore matters, you may need to go back 12 years.
Penalties under a voluntary disclosure
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’ is 150% of the tax; reduced to 100% for voluntary disclosures. Asset-based penalties may also be charged. We can help achieve reductions in penalties, including considering any reasonable excuses.
Starting a voluntary disclosure to HMRC
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 penalties you might owe is not straightforward. Using an adviser to manage communications with HMRC can reduce the stress of dealing with a disclosure. Our tax dispute resolution specialist advisers can help you through every stage until agreement with HMRC is reached, building in time to pay if necessary.