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Voluntary disclosure: A quick guide

14th Apr 2022
Brought to you by
tax cloud

Tax Cloud is an R&D Tax Credits claim portal.

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Have you found this content useful? Use the button above to save it to your profile.

Whether it’s VAT returns, undeclared income, self-assessment or something else, it’s essential that any submissions to HMRC are completely accurate. But life is hectic and none of us are perfect, so mistakes can happen.

Of course, sometimes tax errors aren’t always as innocent as they seem, which is why HMRC has tough measures in place to tackle tax evasion. The fact remains however that innocent or not, people must fess up sooner rather than later. Ignoring a known underpayment of tax can lead to legal action and expensive consequences your clients would do well to avoid.

Frankly, HMRC takes a dim view of anyone knowingly not paying their dues. Plus latest statistics show HMRC opened 169,000 compliance checks in the last six months of 2021, up 46% from just 78,000 during the six months previously. So it’s not really a case of if but when they’ll get caught out.

Voluntary disclosure is a way of owning up to any tax mistakes that have been made so the right amounts can be paid. Anyone taking this route may be seen by HMRC in a much more favourable light simply by volunteering to come forward, so it should be strongly encouraged.

If something isn’t quite right with your clients’ tax payments, the subject of Voluntary Disclosure will need to be discussed. Here’s a refresher.

Voluntary Disclosure in a nutshell

Voluntary Disclosure is the channel by which HMRC can be informed about a non-compliant activities or errors. Like an ‘amnesty’, it means that those who come forward and own up in this way are far less likely to face an investigation. Apart from anything, it’s the chance to put things right and ultimately have peace of mind. But time is of the essence, especially if there’s to be any hope of leniency in terms of fines or penalties.

Who can use Voluntarily Disclosure to inform HMRC of mistakes?

It’s easy to fall into the trap of thinking HMRC only needs to know about large mistakes or deliberate fraud. This is a common theme we hear about quite a bit - but of course, it’s not the case. Even the smallest errors can trigger an investigation, as no doubt you’re all too well aware. Coming clean will always be to your clients’ advantage.

What mistakes can be fixed by Voluntary Disclosure?

Any errors involving Income Tax, NI contributions, Corporation Tax or Capital Gains Tax can be reported via Voluntary Disclosure.

How long do people have to fix any errors?

Accidentally missing off a piece of information, putting in a wrong figure or not declaring the right amount of income is what the Digital Disclosure Service is designed for. There’s then a limit of 90 days by which any outstanding tax must be paid by.

Balance speed with support

As soon as they aware of any tax issues, individuals and businesses must tell HMRC by completing the DDS form. This really goes without saying.

However, clients who have realised a tax mistake has been made can be, shall we say, a little emotional. After all, it could have a real impact on their cashflow and business plans. So (and again, this should be taken as read), bear in mind that although time is of the essence, your client may need extra reassurance as well as tax advice.

Once a business or individual has informed HMRC of their intention to make a disclosure, HMRC will give them a unique Disclosure Reference Number (DRN) and Payment Reference Number (PRN) to be used when paying the outstanding amount.

How to prepare an HMRC tax disclosure

If there is income that needs to be disclosed, the tax owed will clearly need to be calculated. If there is any income that has already been paid correctly, make sure your client then doesn’t include this on their disclosure.

Hopefully your client should be in a position to pay their outstanding tax. However, if they can’t pay, they may need come to an arrangement that HMRC will agree to. There’s also a chance that HMRC will accept a reduced payment in certain circumstances, and this is where your support may be needed.

How to pay HMRC the tax owed

Payment should be sent at the same time as disclosure, and the PRN sent previously to your client by HMRC will be needed for the transaction.

The payment should also be received by HMRC within the 90-day deadline as set out in your client’s notification acknowledgement letter.

Assuming all is well and HMRC accepts that a full disclosure has been made accurately and in good faith, an acceptance acknowledgement letter will be sent within a couple of weeks. If any further action needs to be taken, your client will also be informed (usually in writing) at this point.

If HMRC decides it will not accept your client’s disclosure, they will again formally contact them to explain why. Further action will also be made clear.

Note that if the disclosure is deemed to be substantially incorrect, HMRC will likely seek far higher penalties. For this reason alone, it’s well worth your client being completely honest all the way through and getting it right first time.

This article was provided by Tax Cloud

Designed and built by the specialist R&D funding consultants at Myriad Associates, Tax Cloud is an easy, cost-effective way of getting your clients essential innovation funding in the form of R&D Tax Credits.

Quick to use and fully supported by us along the way, there are numerous reasons why UK accountancy firms are using Tax Cloud.

Potentially thousands of pounds of tax relief is at stake for your clients. Plus it’s the perfect way for your practice to easily diversify its services and there’s a nice little referral fee for your firm too - up to 30%.

If you have any questions about the Tax Cloud portal why not try our demo or call the team on 020 7360 4437. You’re also welcome to send us a message and we’ll call you back.