Discovering an error or omission in your UK tax affairs can be concerning. In this situation, the appropriate course of action is to disclose the issue to HMRC. This will help ensure that your tax position is corrected and up to date. Taking proactive steps to address the matter can provide certainty and help avoid more significant issues in the future.

This applies to individuals as well as all types of entities subject to UK taxation, including companies, partnerships and trusts.

Why make a disclosure?

HMRC encourages taxpayers to disclose errors voluntarily, but doing so can also offer significant benefits to the taxpayer.

Ignoring an issue does not make it disappear. HMRC now receives information from an increasing number of sources and has greater access to data than ever before. As a result, tax irregularities are more likely to be identified, potentially leading to an enquiry.

HMRC enquiries can be lengthy, disruptive and stressful, as well as generating professional costs in responding to information requests. By contrast, making a disclosure allows matters to be dealt with proactively and often leads to a much quicker resolution, provided HMRC is satisfied that a full and accurate disclosure has been made.

One of the most significant advantages relates to penalties. Where a disclosure is made before HMRC has contacted you about the issue, it is generally regarded as an unprompted disclosure. Unprompted disclosures attract the maximum available reduction in penalties and, in some circumstances, penalties can be reduced to nil.

Not all disclosures are unprompted. In some cases, a disclosure may follow contact from HMRC, such as a nudge letter and could therefore be treated as a prompted disclosure. Although penalties will normally apply, the taxpayer can still benefit from substantial mitigation, often resulting in a significantly lower penalty than might arise following a formal enquiry.

When should a disclosure be made?

A disclosure should be considered whenever an error or omission results in an underpayment of tax. Common examples include errors in submitted tax returns, such as:

• Understated income, turnover or profits.
• Overstated expenses or deductions.
• Claims for expenditure that is not tax deductible.
• Other inaccuracies that have resulted in insufficient tax being paid.

For companies, this can include the claiming of non-business expenditure, such as directors' personal expenses, as deductible business costs.

A disclosure may also be required where tax returns should have been submitted but were not. For example, where an individual has received taxable income or realised taxable gains without notifying HMRC, this may constitute a failure to notify chargeability to tax and should be corrected through a disclosure.

Types of disclosure that can be submitted to HMRC

Digital Disclosure Service (DDS)

For many taxpayers, HMRC's DDS is the most suitable route for making a disclosure.

DDS is an online platform that allows taxpayers to notify HMRC of tax irregularities and submit a formal disclosure. The process generally involves:

1. Submitting a notification of intent to disclose.
2. Preparing and submitting the disclosure.
3. HMRC reviewing the disclosure and raising any queries.
4. HMRC accepting the disclosure once all outstanding points have been addressed.

DDS is particularly well suited to straightforward disclosures. However, more complex matters may be referred internally to specialist HMRC teams, which can sometimes extend the process.

Direct disclosure to HMRC specialists

For more complex matters, it may be preferable for your professional adviser to engage directly with a specialist HMRC team or, where applicable, your Customer Compliance Manager (CCM).

This approach can provide a dedicated point of contact with a greater understanding of the issues involved and often allows for more effective engagement throughout the disclosure process.

Code of Practice 9 (COP9)

In the most serious and complex cases involving deliberate tax irregularities, a disclosure under COP9 may be required.

COP9 operates through the Contractual Disclosure Facility (CDF). Under this process, HMRC offers protection from criminal investigation in relation to tax fraud, provided the taxpayer makes a full and complete disclosure of all deliberate tax irregularities and settles the associated tax, interest and penalties.

COP9 cases are handled by HMRC's Fraud Investigation Service (FIS), whose officers have extensive experience dealing with complex disclosures. Given the seriousness of these matters, the process is highly structured and requires careful management throughout.

What to do if you need to make a disclosure

If you discover an error or omission in your tax affairs, or receive correspondence from HMRC regarding a potential issue, seeking advice at an early stage can help you understand your options and potential implications.

To find out more or to discuss your circumstances in confidence, please get in touch with Paul Marcroft or your usual RSM representative.

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