Voluntary tax disclosure
At one time or another, many people will have made a mistake on their tax return. These are usually the result of human error rather than an attempt at tax evasion.
If you owe more tax than you’ve declared, it’s best to inform HMRC by making a voluntary disclosure. This may seem daunting, but HMRC knows that mistakes happen and has a process for you to disclose them. Here’s a handy guide.
What is a voluntary disclosure?
A voluntary disclosure is a way for taxpayers to notify HMRC of underpaid tax as soon as they realise they’ve made a mistake. This allows you to rectify the error quickly, rather than waiting for HMRC to spot it and contact you.
HMRC can charge penalties for errors, especially if they are deliberate. Making a voluntary disclosure will reduce these penalties significantly. In some cases, they will be waived altogether.
What errors can I disclose?
The voluntary disclosure process lets you report errors in five main areas:
- Income tax
- Capital gains tax
- National insurance contributions
- Corporation tax
- Annual tax for enveloped dwellings (ATED)
The most common mistake is underpayment. An example of this would be forgetting to declare some of your income, and consequently not paying enough income tax. It is also possible that you may have forgotten to register for a certain tax altogether. This can also be put right with a voluntary disclosure.
If you have made an error relating to the Coronavirus Job Retention Scheme, there is a separate disclosure process.
How do I make a tax disclosure?
HMRC runs regular campaigns to encourage voluntary disclosures. These focus on a particular sector, and offer a kind of amnesty on undeclared income.
Previous campaigns have targeted plumbers and electricians, while the current campaign is focused on private landlords. If you fall into this category, you can make a voluntary disclosure online, by post or over the phone.
If your sector isn’t covered by the current campaign, you can still make a voluntary disclosure using the Digital Disclosure Service (DDS). This is an online service, so you will need a Government Gateway ID to access it.
There are three steps to making a disclosure:
- Notify HMRC that you intend to make a disclosure. You can do this by completing the online DDS form. HMRC will send you two reference numbers – a disclosure reference number to identify your case, and a payment reference number for paying what you owe.
- Prepare your disclosure. Once HMRC acknowledges your notification, you have 90 days to do this. You will need to add up all undeclared income/gains and calculate how much tax you owe. You will also need to include any penalties that may apply. You can work these out using the government’s online penalties calculator.
- Send your disclosure and payment. You should send your disclosure and the money you owe at the same time. You will need your payment reference number to do this. Sending this information constitutes a legal offer to clear your debt. If HMRC accepts the offer, it becomes a binding contract.
What happens next?
If HMRC is satisfied with your disclosure, it will accept your offer and send an acknowledgement within two weeks. If the disclosure still contains errors, you will be contacted again and asked to update it. If HMRC decides that your disclosure is wilfully misleading, you may be charged a higher penalty.
Finding a mistake on your tax return can be worrying, but there’s no need to panic. Being honest with HMRC is your best approach, and we can help you if you want professional support.
If you need help preparing a voluntary disclosure we have a team of experts waiting to assist you. Please don’t hesitate to get in touch. You can contact us on 020 7330 0000 or email us