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If you want to disclose gains or income that you have not reported to HMRC, you need to know how to do so. You may even have received a letter from HMRC that has prompted you to look for a way to rectify mistakes in your tax affairs. If you find yourself in this position, you need to know about HMRC’s DDS or Digital Disclosure Service.
What is The DDS?
The DDS or Digital Disclosure Service is an HMRC online platform designed to enable businesses and individuals to disclose tax errors or irregularities that they have not previously reported to HMRC. In order to promote greater transparency in taxation and to encourage taxpayers’ honesty, HMRC launched the DDS several years ago.
Who Is Able To Use The DDS?
The DDS or Digital Disclosure Service provided by HMRC can be used by anybody who wishes to rectify their taxation affairs and to make disclosure of any tax irregularities that have not been disclosed previously. Companies, trustees and individuals who are subject to tax laws in the UK and who have made omissions or errors in reporting their tax can use this service. Any prompted individuals can use the service too. Prompted disclosure relates to any situation in which enquiries have begun or an investigation has been started by HMRC about the tax affairs of an individual or company and, in response, the taxpayer decides they should make disclosure about any irregularities in their tax affairs to HMRC.
What Can I Disclose Via The DDS?
You can use the DDS to disclose several kinds of tax issues, such as:
- Capital Gains and Income Tax – omissions or errors in a personal tax return, for example, failure to report any self-employment income or income from rental property.
- Corporation Tax – omissions or errors in a corporate tax return, for example, over-claiming deductions or under-reporting profits.
- National Insurance and PAYE – omissions or errors in payroll tax, for example, failure to pay or deduct the right amount of income tax or national insurance.
How Is The DDS Used?
It can be difficult to know how to disclose gains or income to HMRC. Here is guide to using the DDS:
First, you need to register for the service. Simply visit HMRC’s website, navigate to the DDS page and click “Start Now”. You can then provide your personal details, such as your contact information, address, and name. You can choose which kind of tax you are disclosing and then provide information about that tax irregularity, including its type, related period, and amount. You can upload any supporting documents or additional information to support the disclosure before reviewing and submitting it. Once the disclosure has been submitted, you receive a DRN (Disclosure Reference Number) from HMRC along with a PRN (Payment Reference Number).
Once HMRC acknowledges receipt of your DDS form, you have a period of 90 days to complete the disclosure and make payment. In the event that your case is complex and you require further time to obtain the required information, you can contact HMRC and ask for an extension.
Information must be supplied about all irregularities you want to disclose. That includes all information regarding the tax periods or years involved as well as the irregularities’ nature and all mitigating circumstances contributing to your non-compliance.
You must also calculate how much tax you owe due to the irregularities. You will find guidance provided by HMRC about how you can work out how much tax you owe, but it is always a good idea to get professional advice in order to ensure that you have accurately worked out the calculation.
To work out how much tax you owe and how much taxable profit is due on the undisclosed income, it is necessary to first subtract allowable expenses that you incurred at the time you generated that income. How much tax you have to pay will depend on the amount of income earned above the available allowances.
When the amount of tax you owe has been calculated, you will then be required to make a formal disclosure in full to HMRC. To do this, you will have to complete your disclosure form along with providing comprehensive details of your undeclared and undisclosed income.
Finally, once the disclosure is submitted and HMRC has sent you your PRN (Payment Reference Number), you can then make payment of the amount you owe to HMRC. There are several different options to use when making payments via the DDS such as debit or credit cards, bank transfers, cheques, and online banking.
Payment should be sent to HMRC when you send them your disclosure, unless you have already gotten in touch with HMRC and agreed that you can have extra time to make payment. You should make payment within the 90-day period outlined on the acknowledgement letter for your notification. Once HMRC is happy that your disclosure has been made in full, they accept it and then send out their acknowledgement to you within 2 weeks.
What Are The Penalties If I Don’t Disclose?
If you do not disclose any irregularities in your tax, you could face penalties. These could be significant, including interest, fines, and even legal action. The penalty for not disclosing will depend on your case’s specific circumstances.
You should be aware that making disclosures via the DDS still cannot guarantee that penalties will be avoided, but if you make a disclosure voluntarily, you can reduce the amount of penalties you would have had to pay if those irregularities had been discovered during a tax investigation by HMRC.
The DDS is a helpful tool that companies and individuals can use in order to make either a prompted or voluntary disclosure of tax irregularities that they have not previously disclosed. The service offers many benefits such as convenience and confidentiality, along with possibly reduced penalties, but you should still seek help from professional tax investigation advisers to ensure you are using this service correctly and appropriately.
