Engaging in voluntary disclosure entails proactively communicating with HMRC to rectify any discrepancies or oversights in past tax submissions, unpaid tax amounts, or other inconsistencies before they are discovered during HMRC audits. In recent times, HMRC has launched numerous campaigns and disclosure opportunities targeting specific taxpayer segments, encouraging them to rectify their tax affairs under more lenient penalty conditions.

Taxpayers who do not qualify for these campaigns can still initiate voluntary disclosures through the Digital Disclosure Service (DDS), potentially benefiting from reduced penalties compared to those applied following HMRC-initiated investigations. Voluntary disclosures are often subject to less scrutiny than investigations initiated by HMRC.

Understanding the Digital Disclosure Service

DDS is a digital platform designed for individuals and businesses to rectify any past tax errors or omissions that have not been previously reported to HMRC. The platform features an interest and penalty calculator, assisting users in determining the owed amounts for underdeclared tax liabilities spanning up to the past 20 years. Taxpayers are required to utilize this tool and include the calculated figures in their disclosure submissions.

The penalties are proportionate to the additional tax owed and vary based on the nature of the non-disclosure:

  • No penalty for errors made despite taking reasonable care
  • 0–30% for careless errors
  • 20–70% for deliberate non-declarations
  • 30–100% for ‘deliberate and concealed’ errors involving offshore matters or transfers

HMRC assures that no penalties will apply if reasonable care was taken, even if the correct tax amount wasn’t declared. However, they also note that they expect very few circumstances to qualify for this exemption.

In practice, for non-deliberate non-disclosures, HMRC generally seeks a maximum of four years of back taxes if the taxpayer registered for Self Assessment on time and took reasonable care in managing their tax affairs. This period extends to six years for ‘careless’ errors and up to 20 years for ‘deliberate’ misinformation. Taxpayers must also ensure their current and future tax affairs are in order. In cases of non-deliberate non-disclosures spanning more than six years, HMRC may request ‘voluntary restitution’ of the unpaid tax, but this is not enforceable, and no penalties or interest apply.

Navigating the Declaration Process

Initiating a voluntary disclosure involves completing an online form, after which HMRC provides a reference number for the DDS declaration form. Taxpayers have 90 days from HMRC’s acknowledgment to submit the DDS form and pay any outstanding tax. Missing this deadline could result in a formal investigation, although extensions can be requested if needed.

The DDS platform includes sections for declaring calculated interest and penalties and a declaration confirming the accuracy and completeness of the disclosure. The taxpayer’s payment offer, combined with HMRC’s acceptance, forms a legally binding agreement.

By engaging in voluntary disclosure, taxpayers can proactively address past tax irregularities, potentially benefitting from reduced penalties and a streamlined resolution process.

 
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