Making a Voluntary Disclosure: What to Do If You Owe Tax
Sometimes, we make mistakes when it comes to our taxes. Whether it’s a simple oversight or something more serious, failing to declare income or gains to HMRC can lead to big problems down the line. The good news is, you can fix it – and it’s always better to do so before HMRC catches up with you.
In this blog, we’ll walk you through how to make a voluntary disclosure if you owe tax and what your options are depending on your circumstances.
What Is a Voluntary Disclosure?
A voluntary disclosure is when you come forward to HMRC to declare any tax you owe but haven’t paid. This might be due to income or capital gains that slipped through the cracks, or perhaps more serious issues. Either way, it’s in your best interest to act fast and put things right before HMRC contacts you.
The Digital Disclosure Service
One of the most common ways to make a voluntary disclosure is through HMRC’s Digital Disclosure Service. This service can be used by individuals and companies to tell HMRC about unpaid tax related to:
- Income Tax
- Capital Gains Tax
- Inheritance Tax
- Corporation Tax
- National Insurance
- Annual Tax on Enveloped Dwellings (ATED)
However, it’s worth noting that VAT errors can’t be disclosed this way.
How to Use the Digital Disclosure Service
Making a disclosure via the Digital Disclosure Service is pretty straightforward, but there are a few steps to follow:
- Notify HMRC: Start by letting HMRC know you want to make a disclosure. You can do this online here. At this stage, you don’t need to give all the details of what you owe.
- Get Your Reference Number: Once you’ve notified HMRC, they’ll send you a unique Disclosure Reference Number (DRN) and a payment reference number.
- Make Your Disclosure: Once you have your DRN, you’ve got 90 days to submit your full disclosure, including the details of what you owe, any interest, and any penalties. HMRC even has an online calculator to help you work out these figures.
- Submit and Pay: When you’re ready, you can submit your disclosure and make the payment using the reference numbers HMRC provided.
It’s always a good idea to get professional advice at this stage, especially to make sure your calculations are correct and to avoid any future issues with HMRC.
How Far Back Can HMRC Go?
The number of years you need to include in your disclosure depends on how the error happened:
- Reasonable care: If you’ve taken reasonable care, HMRC can go back up to 4 years.
- Carelessness: If you’ve been careless, HMRC can go back up to 6 years.
- Deliberate: For deliberate tax avoidance, HMRC can look at the past 20 years.
Once HMRC receives your disclosure, they may check your submission before accepting it. If everything is in order, they’ll send a letter of acceptance. However, if your disclosure is found to be incomplete or incorrect, HMRC may not accept it and could take further action, including higher penalties or a criminal investigation in cases of fraud.
The Contractual Disclosure Facility (CDF)
The Contractual Disclosure Facility is another option but should only be used if you’ve deliberately failed to tell HMRC about tax you owe. This is for cases of tax fraud and shouldn’t be used if your error was accidental or due to carelessness.
If HMRC suspects you of tax fraud, they may offer you a contract through the CDF, giving you the chance to admit to the fraud.
HMRC Campaigns
HMRC occasionally runs specific campaigns targeting particular areas of non-disclosure. For example, they’ve run campaigns on undeclared sales from misusing till systems. If you fall into one of these categories, it’s important to act quickly. You can check HMRC’s campaign page for more information.
Need Help?
If you’ve realised you owe tax and want to make a voluntary disclosure, it’s always best to seek professional advice to get it right. Our team at Jon Davies Accountants are here to guide you through the process, ensuring your disclosure is accurate and minimises any penalties.
Get in touch with Jon or the team today, and let us help you sort things out before HMRC gets involved!
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Any questions?
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