Voluntary disclosure to HMRC

What a voluntary disclosure is

A voluntary disclosure is telling HMRC, on your own initiative, about tax that should have been paid and was not — income or gains that were never declared, an error in a return, or a failure to tell HMRC that tax was due at all — and paying what is owed, with interest and any penalty. It covers past years, not just the current one.

Why timing changes the outcome

The penalty rules distinguish between an unprompted disclosure and aprompted one. Broadly, a disclosure is unprompted when it is made at a time when you had no reason to believe HMRC was about to discover the matter. Once a letter has arrived, that option has usually gone.

This is the one area of our work where acting earlier is straightforwardly better. It is also the area where people most often delay, because nothing external is forcing the issue.

How penalties are set

A penalty for an inaccuracy in a return is a percentage of the potential lost revenue — broadly, the tax that was understated. The range depends on the behaviour behind the inaccuracy and on whether the disclosure was prompted. Within each range, the quality of the disclosure decides where the penalty lands: telling HMRC, helping it quantify the tax, and giving access to records.

No penalty is due for an inaccuracy made despite taking reasonable care. A failure to tell HMRC that tax was due at all follows a similar structure. Where the matter involves offshore income or assets, the percentages can be higher depending on the territory involved, up to double these figures.

How a disclosure is made: the Digital Disclosure Service

Most disclosures are now made through HMRC’s Digital Disclosure Service, its online route for notifying an intention to disclose and then submitting the disclosure itself. It works in two stages:

1. Notification. You tell HMRC that you intend to make a disclosure. HMRC acknowledges it and issues a disclosure reference number.
2. Disclosure and payment. From the date of that acknowledgement there is a fixed period, currently 90 days, to submit the full disclosure, with its calculations, and to pay the tax, interest and penalty.

Because the clock starts at notification, the scoping work is best done before the notification, not after it. HMRC then reviews the disclosure, and it may accept it, ask questions, or look further where something does not add up. Cryptoasset disclosures go through the same service; our guide to HMRC crypto letters covers them.

The routes

Let Property Campaign

HMRC’s disclosure route for individual landlords with undeclared income from residential lettings. It commonly applies where a property was let out without the income being returned, or where allowable expenses and reliefs were misunderstood over a number of years. It has its own page, including for landlords who live abroad.

Worldwide Disclosure Facility

The route for UK tax liabilities relating wholly or partly to offshore income, assets or activities. Offshore matters carry their own penalty regime, and the exposure can be materially higher than for an equivalent domestic issue. Under the Common Reporting Standard, financial institutions in most other countries now report the accounts of UK residents to HMRC each year, so undisclosed offshore positions are considerably more visible than they once were.

Older offshore matters carry an extra risk. The Requirement to Correct obliged anyone with undeclared offshore tax for periods up to 5 April 2017 to correct it by 30 September 2018. Where that did not happen, the failure-to-correct penalty applies instead of the ordinary penalties: it starts at 200% of the tax and cannot normally be reduced below 100%.

Unprompted disclosures outside a named facility

Not every correction fits a published campaign. Where it does not, a disclosure can still be made directly, and the same principles about scope, behaviour and years apply.

Where the conduct may have been deliberate

A person who believes they may have committed tax fraud can ask to use the Contractual Disclosure Facility under Code of Practice 9 rather than the Digital Disclosure Service. Whether that is the right route is a judgement on the facts; our page on COP9 investigations explains how it works.

How far back a disclosure goes

The number of years depends on the behaviour. Broadly, HMRC can assess four years where reasonable care was taken, six where the loss arose from carelessness, and up to twenty where it was deliberate. Offshore matters can reach further back even where the conduct was not deliberate. Our guide to how far back HMRC can investigate sets out the limits in full.

What we do

• Establish the full extent of the position before anything is notified
• Determine which behaviour applies, since it drives both years and penalties
• Identify the right route, or advise that none of the campaigns fits
• Prepare the disclosure and the computations
• Put the penalty position and any mitigation to HMRC deliberately
• Manage correspondence through to settlement, including time to pay where needed

Further reading

• HMRC nudge letters and the certificate of tax position
• HMRC’s deliberate tax defaulters list, and how disclosure affects it
• How far back can HMRC investigate?
• Is HMRC looking at your tax affairs?