HMRC Voluntary Disclosure – An Overview

Gary Green
Gary Green
July 11, 2024

Most people would agree that when it comes to dealing with their finances, they should be upfront and honest with HMRC. Whether you’re running a business or are self-employed, however, managing tax can often be time-consuming and stressful, and as a result, mistakes may happen unintentionally from time to time. However long you’ve been reporting your income to HMRC there will always be a chance of errors occurring and if they do, it is only natural to be worried about what you should do next. Fortunately, HMRC offers a chance for people in this situation to rectify their mistake.

It is often worrying if you think that you have done something wrong when completing your tax return. But as long as you are prepared to declare the unpaid tax in a voluntary disclosure to HMRC you should not be hit with any penalties.

But what is a voluntary disclosure to HMRC? How do you make one? Read on to learn more about how to report a mistake in your tax return and what it could mean for you.

Voluntary Disclosure – What Is It?

Every time you submit information about your income to HMRC it should be entirely transparent. It is the general belief of HMRC that taxpayers typically want to pay them the right amount of tax but sometimes, mistakes occur and these may result in individuals and companies paying less in tax than is actually owed. This is where voluntary disclosure comes in.

Voluntary disclosures give people who have not paid the right amount in tax a chance to rectify the declaration that they have made in, in turn, bring their tax payments in line. The Digital Disclosure Service or DDS enables companies and individuals alike to rectify discrepancies that have occurred with their Corporation Tax, National Insurance, Capital Gains Tax or Income Tax. Following the declaration, any extra tax that is owned will need calculating and then the taxpayer must pay the required amount within a 90-day period.

What Does Voluntary Disclosure Cover?

The Digital Disclosure Service is able to be used by companies and individuals who wish to make a disclosure about

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

So, as an example, if you run a business that has not fully declared its income then you can make a voluntary disclosure.

When Are Voluntary Disclosures Needed?

Financial information is required by HMRC from organisations and individuals to ensure the right amount of tax is paid. If a mistake is made resulting in a taxpayer paying the wrong amount in tax, that should be disclosed in a voluntary disclosure.

Voluntary disclosures are important because if you are aware that important information has been deliberately changed or you have accidentally made an error when reporting your income, you should never simply try to pretend that nothing has happened. In most cases, HMRC eventually realises that there are discrepancies since they can access third-party sources and that could, in time, end up in serious financial penalties for either your business or you yourself.

Voluntary cases, on the other hand, are dealt with by HMRC far more leniently when compared with how they deal with mistakes discovered via other means. If you face a tax evasion investigation, there are several potential consequences if you get caught, including financial penalties and potentially prosecution. You can avoid this by making a voluntary disclosure.

Why Make A Voluntary Disclosure?

There are several reasons for making a voluntary disclosure such as:

  • If you get caught, you could face heavy fines and even criminal prosecution.
  • Your business will have greater protection.
  • You will have greater peace of mind in the long term.

Although it is only the most serious tax evasion cases that face criminal prosecution, even if taxpayers are investigated using civil powers, it is important to recognise that the penalty that can be levied may be up to 100% of the amount of tax lost. Voluntary disclosure is a form of tax penalty amnesty that can enable taxpayers to rectify their tax affairs while also avoiding being hit with harsh penalties. Early disclosure will minimise interest and penalties and, furthermore, prevent a possible investigation in the future which brings its own stress.

If you do not take advantage of voluntary disclosure within the specified time, the penalty that you could face will be significantly harsher. It is therefore a good idea to consider voluntary disclosure as soon as you become aware that there are any discrepancies in your tax returns to avoid a potentially unpleasant situation developing.

How Can A Disclosure Be Made?

If you are keen to make an HMRC voluntary disclosure, you need to know how to go about it. Immediately after you become aware that you owe additional tax or as soon as you develop concerns about unpaid taxes, it is important to get in touch with HMRC.

The process of making a voluntary disclosure is quite straightforward. You should simply notify HMRC you wish to make a voluntary disclosure and supply all of the information with regard to your tax duties and income that went unreported. You then make HMRC a formal offer in order to come to an agreement about how much to pay. You then pay the amount that you owe.

Is There A Difference Between The DDS And CDF?

The CDF or Contractual Disclosure Facility Form is also known as Code of Practice 9. This is only the right option for people who have deliberately failed to pay the right amount of tax historically. In such cases, making full disclosure via the CDF protects you from any criminal investigation. Furthermore, doing this can help avoid your details being published on the government website. In cases where HMRC believes that intentional tax avoidance has taken place and the taxpayer in question has not supplied a CDF, HMRC may then decide to escalate matters significantly.

If you believe that you have either deliberately or accidentally paid the wrong amount of tax as a company or individual, you should seek professional advice to mitigate the damage.

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