Voluntary Disclosure to HMRC

What is HMRC voluntary disclosure, and is it something you should do?

Honesty is the best policy. Whether you work for yourself or own a business, handling your taxes can be difficult, and mistakes can occasionally be made without your knowledge. There is always a chance that mistakes will be made, regardless of how long you have been declaring your income, but did you know that there is a way to fix them?

Although you may be worried if you have filed your tax return incorrectly, as long as you disclose any unpaid taxes to HMRC (a process called as voluntary disclosure), you should receive lenient treatment.

Want to deal with the problem? What does disclosure mean for you as a taxpayer? Read on and we’ll cover everything you need to know about voluntary disclosure.

What is voluntary disclosure?

Your disclosure of your income to HMRC should be entirely open and transparent. Although HMRC thinks that taxpayers wish to pay the right amount of tax, mistakes occasionally occur, causing businesses and individuals to pay less than they should.

Through voluntary disclosure, persons who are not paying the appropriate amount of tax have the chance to update their payments and correct their declaration. Individuals and businesses can correct any errors with their:

• Income Tax
• Capital Gains Tax
• National Insurance contributions
• Corporation Tax

through the DDS (digital disclosure service). Then, within 90 days, you must compute and pay any additional tax due.

When is it necessary to make a voluntary disclosure?

To make sure that the proper tax is being paid in accordance with current law, HMRC requests financial information from both people and organisations. If a mistake has been made and too little tax has been paid, this must be disclosed by voluntary disclosure.

The worst thing you can do is bury your head in the sand if you know you made an error with your taxes or purposely changed crucial facts. As their access to third-party sources continues to advance, HMRC will almost always discover the differences later on, which could result in severe penalties for you or your business.

HMRC, however, treats voluntary disclosure cases more leniently than when they are found through other channels. Penalties and even prosecution are two of the most common outcomes of being detected when you are under investigation for tax evasion, but all of this can be avoided by making a voluntary declaration.

Key reasons for disclosure

• If you are discovered, you could face a criminal investigation and significant fines.
• Your business will be better protected.
• Whatever the reason for the error in your tax information, it is better to be upfront.
• Tax evasion will not reflect favourably on your business.

The most severe tax evasion instances may be considered appropriate for criminal prosecution, but even if the taxpayer is subject to a civil investigation, the fines imposed may be as high as 100% of any lost taxes.

When should you seek professional advice and how should you disclose?

You must contact HMRC as soon as you become aware of a tax debt or have concerns about unpaid taxes.

The voluntary disclosure procedure is reasonable straightforward, and to disclose you should:

• Let HMRC know you want to make a disclosure
• Provide any and all non-reported income and tax details.
• Make a formal offer to HMRC
• Pay the debt in full

Contractual Disclosure Facility (CDF) – Code of Practice 9

This may be the better choice than voluntary disclosure for people who have in the past deliberately neglected to pay the correct tax. You will be shielded from criminal inquiries if you make a thorough disclosure through the CDF. Additionally, by doing this, you might be able to prevent having your information posted on the government website for a year. However, HMRC may decide to take further action if there is reason to believe that tax evasion has been done on purpose and no CDF has been provided.

Why make a voluntary disclosure?

Mercian Accountants will guide you through the voluntary disclosure procedure; and if you need assistance with managing your taxes, we will examine your financial records and help you provide current, correct information to HMRC. Contact us now for details.

Making a voluntary disclosure to HMRC means that you are reporting any underpaid tax or other inaccuracies in your tax affairs to the UK tax authority. This process can be stressful and confusing, but it is important to take action as soon as possible to resolve any issues and avoid potential penalties.

The right amount of tax should be paid by everyone of us. We can assist you in correcting any tax payment errors you believe you may have made to HMRC.

The reason why your tax affairs are incorrect is irrelevant. It’s preferable to speak with HMRC and acknowledge any mistakes or failings than hide your head in the sand.

HMRC may also think about opening a criminal inquiry in serious cases of unreported tax or income.

HMRC has various methods for identifying tax irregularities, including using sophisticated software to cross-reference information from different sources. If they discover that you have underpaid tax or made errors in your tax returns, they can launch an investigation and impose significant fines and penalties.

Making a voluntary disclosure to HMRC is a way of proactively reporting any inaccuracies and resolving any issues before they are discovered by HMRC. This can help to reduce any potential fines and penalties and prevent a tax investigation.

The Digital disclosure service

Use the digital disclosure service if you’re an individual or company and want to disclose something regarding:

• Income Tax
• Capital Gains Tax
• Inheritance Tax
• Corporation Tax
• National Insurance contributions
• Annual Tax for Enveloped Dwellings (ATED)

You can make a disclosure about errors you’ve made:

• despite taking reasonable care to make sure you paid the right amount of tax
• through carelessness
• through deliberate actions

Examples include a business that is trading but hasn’t registered with HMRC for one or more taxes, or a business that hasn’t disclosed all of its income.

When should a voluntary disclosure be made?

It is best to make a voluntary disclosure as soon as possible, as this can reduce any potential fines and penalties. However, it is never too late to make a disclosure, even if you have received a letter from HMRC asking for further information.

HMRC Campaigns

There are two open campaigns as of February 2022. Even if an active campaign does not address your tax situation, you can still use the Digital Disclosure Service to submit a voluntary disclosure (DDS).

It is advised that anyone making a voluntary disclosure to HMRC get professional advice. We can help you in communicating with the tax authorities to negotiate potential fines and file disclosure reports.

Campaign for Credit Card Sales

The Card Transaction campaign targets people or companies who accept debit or credit cards and invites those who have not voluntarily disclosed all of their UK income and tax liabilities to HMRC to do so.

Since they have information on debit and credit card payments made to UK traders and businesses, HMRC is able to identify companies who have not paid all the tax they owe.

A taxpayer should inform HMRC, make a declaration, and pay the tax within 90 days to ensure reduced potential penalties. The tax and associated penalties must be self-assessed by the taxpayer. HMRC may grant a payment grace period depending on the situation.

We have a great deal of expertise informing HMRC and making disclosures on our clients’ behalf.

Let Property Campaign

The Let Property Campaign, which HMRC claims is aimed at the residential rental market, gives landlords who rent out property in the UK and overseas the ability to stay up to date or correct any mistakes they’ve made. Thousands of landlords have already seized the chance to update their tax affairs.

All residential property owners, including those who own a single property, a number of properties, are eligible to participate in the Let Property Campaign and disclose any unreported rental income. However, companies, trusts, and commercial property landlords are not eligible for this programme.

We have a great deal of expertise dealing with HMRC and making disclosures on our clients’ behalf.

Will HMRC discover any discrepancies?

Every year, HMRC has access to a growing amount of data. Currently, it receives data from 28 sources, including UK banks, Experian, Companies House, Land Registry, Benefits Agency, EBay, Tenancy Deposit Protection schemes, and Land Registry. Thanks to the Common Reporting Standard (CRS), HMRC has had access to information from other countries since 2017. As a result of a global information-sharing agreement, HMRC has access to data on foreign accounts and assets, including those held by UK resident taxpayers through foreign entities.

The potential of “Connect”

The Risk Intelligence Service (RIS) of HMRC analyses all data gathered under the CRS. They are a group of specially trained data handlers who hunt for potential mistakes or omissions in a taxpayer’s affairs using a specifically developed questioning system called “Connect.” Every year, more HMRC investigations are brought about by leads from “Connect,” which are now thought to be responsible for at least 90% of HMRC’s cases.

What will HMRC do if they discover an issue?

If HMRC is successful in contesting the accuracy of your tax affairs, the law permits them to impose fines of up to 100% of the lost tax for UK-related operations and up to 300% for offshore activities. This is much greater in both scenarios than what would be assessed if you made a voluntary disclosure, and it might even be feasible to escape paying a penalty altogether.

In the most serious situations, HMRC may decide to launch a criminal investigation with the goal of filing charges.

What protections can you use?

The easiest method to avoid repercussions if you have unreported income or gains, whether in the UK or abroad, is to voluntarily disclose them to HMRC.

HMRC is aware that many taxpayers genuinely want to make amends for prior mistakes. They have developed a number of disclosure features to account for this. These consist of:

• Worldwide Disclosure Facility
• Let Property Campaign
• Digital Disclosure Service
• Worldwide Disclosure Facility
• Contractual Disclosure Facility 
• Profit Diversion Compliance Facility 
• Electronic Sales Suppression (ESS)

By utilising the proper disclosure facility, you may ensure that you:

• Manage and control the HMRC investigation’s reach in an efficient manner.
• reduce the possibility of additional HMRC inquiry
• Limit the amount of time HMRC may inquire about something
• Avoid being charged with a crime
• Pay only the minimal penalty required by law (in some circumstances, this is 0%).

How we can assist

We have a great deal of expertise helping clients who want to voluntarily and voluntarily disclose mistakes in their tax issues.

We’ll examine your situation to see if you received money that ought to have been declared. If we come to the conclusion that you should disclose something, we’ll let you know which course of action is best given your situation and we’ll work with you to find the least expensive method to do it. We shall also take action right away to limit the scope of any prospective investigation and to lessen any financial and non-financial penalties that might be imposed.

To date, our assistance in such situations has saved clients from being exposed as tax cheats or, worse yet, from facing criminal charges.

Get help today

It is important to seek professional help when making a voluntary disclosure to HMRC, as the process can be complex and errors can have serious consequences. Mercian Accountants have extensive experience in helping clients make voluntary disclosures and can guide you through the process to ensure that it is handled efficiently and effectively.

Making a voluntary disclosure to HMRC is a proactive way of resolving any tax irregularities and inaccuracies, and it can help to reduce any potential fines and penalties. However, the process can be complex and confusing, and it is important to seek professional help to ensure that it is handled correctly. Mercian Accountants have the expertise and experience to guide you through the process, and help you to resolve any issues with HMRC efficiently and effectively. Get started today.