It’s easy to assume that HMRC knows everything. In actual fact, the UK tax system relies on taxpayers proactively providing the right information. Submitting a Self Assessment tax return is a good example of this.

HMRC encourages taxpayers who submit a return and subsequently realise they have made a mistake to come forward. Telling HMRC voluntarily about these things without being prompted is called a voluntary disclosure. You can make a voluntary disclosure about any type of tax including income tax, Corporation Tax, Capital Gains Tax or National Insurance.

Why might I need to make a voluntary disclosure?

It’s easy to make a mistake on a tax return. Perhaps there was a typo in your bookkeeping records which led to an incorrect profit figure. Maybe you missed recording income from another bank account.

While the best thing you can do is double check your records before filing a tax return, voluntary disclosure may still be necessary.

When should I make a voluntary disclosure?

As soon as you realise you owe tax, you need to tell HMRC about it. The first step is to calculate the income you need to disclose, so that you can work out how much tax you owe. This will all depend on personal circumstances and tax brackets and thresholds. It’s always best to speak with an accountant if you’re unsure about anything.

How do I make a voluntary disclosure?

You can make a voluntary disclosure in a few different ways. HMRC accepts disclosures online through its Digital Disclosure Service. This is a convenient way of informing HMRC of a mistake so they can process and assess it. The Contractual Disclosure Facility (CDF) form is used if you need to admit any involvement in tax fraud.

Once you have informed HMRC of the mistake, they will give you a unique Disclosure Reference Number (DRN) and a Payment Reference Number (PRN) so that you can pay what you owe.

The next thing you’ll need to do is make an offer to pay any outstanding liabilities. This offer plus HMRC’s acceptance letter creates a legally binding contract between you and HMRC.

When HMRC acknowledges your disclosure form, you must disclose full details and make payment within 90 days. Once they receive it, they will send you an acknowledgement within two weeks.

What information will you need?

If HMRC asks for additional information, you may need to provide annual accounts, bank statements and bookkeeping records. It’s always best to be as transparent and cooperative as possible here. This ensures the process is as disruption-free to your business as it can be.

If you don’t have business records, you will need to start keeping them immediately. It’s vital that you maintain good business records to avoid any potential penalties.

Penalties for mistakes

You may be hit with a penalty if the mistake or omission was due to careless or deliberate behaviour. The consequences of not reporting a mistake on your tax return could be even greater. That’s why it’s always best to make a voluntary disclosure as soon as you realise that there is a problem.

While voluntary disclosure may be an uncomfortable process, it’s important to get it done and out of the way. If accounting mistakes are a problem in your business, the best thing you can do is get in touch with an accountant who can help you put your records and accounts right.

Talk to our advisors at The Accountancy Partnership for more information by calling 020 3355 4047, and get an instant quote online.

About The Author

Christopher Jones

Forensics graduate-turned copywriter and blogger. I love turning complex topics into easy to understand, yet engaging pieces of content.