With the UK’s tax gap estimated to reach £45 billion in 2025, HMRC is under growing pressure to raise more taxes and (unsurprisingly) tax investigations are on the rise.
HMRC have a wide range of investigation and penalty powers which are more severe for those who chose not to come forward voluntarily. If you think you’ve underpaid your taxes, there is a way that you can take control of the situation and even avoid tax penalties altogether. The route is to make a voluntary disclosure to HMRC.
Here’s what you need to know.
Making a tax disclosure means telling HMRC about tax you owe and that you want to put this right. This applies to most taxes (including national insurance and VAT) and underpayments resulting from a simple oversight to deliberate tax avoidance or evasion. Only making a full and accurate disclosure will achieve to highest mitigation of interest and penalties.
A full disclosure involves three key elements:
Even if HMRC have not been in touch, they may do so and sooner than you think. With access to huge amounts of data—from banks, data-leaks, Border Force and overseas tax authorities etc—HMRC uses its “Connect” database system to detect anomalies in taxpayers’ records and seek out those with something to hide.
HMRC frequently issue “nudge letters” urging people to check that their tax affairs are in order and warning of the consequences for not coming forward. Over 50,000 of these nudges were sent out in the last year alone.
A voluntary disclosure can help:
The best way to approach HMRC depends on the type of tax and behaviour that led to the underpayment. For most cases, HMRC’s Digital Disclosure Service (DDS) is the best place to start.
For suspected fraud or deliberate tax evasion, an alternative approach should be taken via HMRC’s Contractual Disclosure Facility (CDF) that can guarantee protection from criminal prosecution.
Common areas where tax disclosures may be required include:
If HMRC “discovers” an underpayment, it may be able to go back and assess previous years.
The look-back period depends on the nature of the failure but could be:
Lubbock Fine recently helped a client achieve a 4-year settlement (HMRC were pushing for 6 years) on the basis that the client had not been careless with their tax affairs.
Statutory tax-based penalties can be charged by HMRC, and these can be:
However, penalties can often be reduced or eliminated altogether if:
This is a very complex area that often requires careful consideration. However, we have successfully secured zero penalties for many clients who came under HMRC enquiry.
Making a voluntary disclosure to HMRC is not without risk—especially if the full background to the case is not fully understood. However, correctly engaging in the process and making a full and accurate disclosure often avoids widening a tax enquiry, mitigating penalties and the added advantage of saving unnecessary professional costs.
However, inherent risks will often be present if:
In serious cases involving fraud, only engaging with the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) will guaranty immunity from prosecution.
At Lubbock Fine, our tax investigation specialists advise on HMRC disputes and disclosures of all types—including all UK taxes, offshore matters, complex technical issues and the CDF/COP9.
We can also provide second opinions on existing disclosures or open enquiries.
To have a confidential chat, get in touch with our Tax Investigations Director Graham Caddock (grahamcaddock@lubbockfine.co.uk)
