Voluntary disclosure to HMRC

What a voluntary disclosure is

A voluntary disclosure is telling HMRC, on your own initiative, about tax that should have been paid and was not — income or gains that were never declared, an error in a return, or a failure to tell HMRC that tax was due at all — and paying what is owed, with interest and any penalty. It covers past years, not just the current one.

If you need to tell HMRC about underpaid tax from previous years

Perhaps rent, interest, a gain or self-employed income never reached a tax return, or a return you filed got something wrong. HMRC’s online route for putting that right is the Digital Disclosure Service, often shortened to DDS. On GOV.UK the service is called “Tell HMRC about underpaid tax from previous years”.

It can be used by individuals, company officers, designated members of limited liability partnerships, trustees, the representatives of someone who has died, and agents acting for any of them. HMRC’s guidance says it covers income tax, capital gains tax, inheritance tax, corporation tax, National Insurance contributions and the annual tax on enveloped dwellings. You sign in to use it, and it helps to have your National Insurance number and Unique Taxpayer Reference to hand.

You do not need the figures to start: the first step is only to tell HMRC that a disclosure is coming. But that step starts a 90-day clock, so the figures are best worked out first. Offshore matters, residential letting, cryptoassets and VAT each have their own route, set out below, and if any of your income or assets are abroad, start with our page on the Worldwide Disclosure Facility.

Prompted or unprompted: why does timing matter?

The penalty rules distinguish between an unprompted disclosure and aprompted one. A disclosure is unprompted when it is made at a time when you had no reason to believe HMRC had discovered the matter or was about to. Once a letter has arrived, that option has usually gone. In practice:

• A disclosure made before HMRC has said anything about the matter will usually be unprompted.
• After a nudge letter about the same kind of income, a disclosure is likely to be treated as prompted, even though the letter is not an enquiry. Our guide to nudge letters explains them.
• Once HMRC has opened an enquiry or compliance check into the matter, a disclosure will normally be prompted. HMRC’s guidance also says a disclosure through the service is unlikely to be accepted if the check was opened before you notified; it is made to the officer running the check instead.

How long the problem has run counts too. Where a disclosure starts more than three years after an inaccuracy arose, HMRC normally restricts the reduction for disclosure, so the penalty does not fall below the minimum plus 10 percentage points.

This is the one area of our work where acting earlier is straightforwardly better. It is also the area where people most often delay, because nothing external is forcing the issue.

How penalties are set

A penalty for an inaccuracy in a return is a percentage of the potential lost revenue — broadly, the tax that was understated. The range depends on the behaviour behind the inaccuracy and on whether the disclosure was prompted. Within each range, the quality of the disclosure decides where the penalty lands: telling HMRC, helping it quantify the tax, and giving access to records.

No penalty is due for an inaccuracy made despite taking reasonable care. A failure to tell HMRC that tax was due at all follows a similar structure. Where the matter involves offshore income or assets, the percentages can be higher depending on the territory involved, up to double these figures.

To compare a prompted and an unprompted disclosure on your own figures, try our HMRC penalty calculator. Our guide to careless and deliberate penalties explains the reductions in detail.

How does the Digital Disclosure Service work?

HMRC’s guidance sets out five steps: notify, disclose, make a formal offer, pay, and help with any questions HMRC asks.

1. Notify. You tell HMRC online that you intend to make a disclosure. At this stage no figures or details of the income are needed. HMRC acknowledges the notification and sends a disclosure reference number, to quote whenever you contact it, and a payment reference number.
2. Work out what is owed. For each year that needs correcting, that means the income or gains, the tax, interest from the date the tax was due, and the penalty, which you calculate yourself. HMRC has online calculators for straightforward cases where only the basic personal allowance is due. Its guidance says a disclosure with the wrong interest will be rejected as incomplete.
3. Disclose and make an offer. The disclosure must reach HMRC within 90 days of the date HMRC issues its acknowledgement. It ends with a declaration that it is correct and complete, and a formal offer to pay what is owed.
4. Pay. Payment is due with the disclosure, using the payment reference. If you cannot pay in full, HMRC’s guidance says not to submit the disclosure or any payment until you have spoken to its helpline, which will ask about your income, outgoings, assets and debts. Our guide to Time to Pay arrangements explains what to expect.
5. Help with queries. HMRC reviews every disclosure and may ask for clarification or evidence. Full co-operation is a condition of the process.

Because the clock starts at notification, the scoping work is best done before the notification, not after it.

Which years go in the disclosure, and which go on a return

Income from the current tax year is not included, and income from the year before it goes on a tax return rather than in the disclosure. If HMRC has sent you a return for 2022-23 or any later year that is still outstanding, that return is completed instead, and the year is left out of the disclosure.

What HMRC does next

HMRC acknowledges the disclosure; its guidance says to call the helpline if no acknowledgement has arrived within two weeks. Once its checks are satisfied, it accepts the disclosure, and your offer and HMRC’s acceptance letter together form a legally binding contract.

If HMRC’s checks find a disclosure largely wrong, its guidance says it will seek much higher penalties, and in exceptional cases an incomplete disclosure may be considered under its criminal investigation policy. If you realise afterwards that something was missed, the guidance says to contact HMRC straight away to amend it. HMRC can also look at your affairs again if information it receives later shows the disclosure was wrong.

The routes

Let Property Campaign

HMRC’s disclosure route for individual landlords with undeclared income from residential lettings. HMRC’s guidance points to it where the only undeclared income is from residential letting. It commonly applies where a property was let out without the income being returned, or where allowable expenses and reliefs were misunderstood over a number of years. It has its own page, including for landlords who live abroad.

Worldwide Disclosure Facility

The route for UK tax liabilities relating wholly or partly to offshore income, assets or activities. It is notified through the same online service, but offshore matters carry their own penalty regime and longer time limits, and the exposure can be materially higher than for an equivalent domestic issue. Under the Common Reporting Standard, financial institutions in most other countries now report the accounts of UK residents to HMRC each year, so undisclosed offshore positions are considerably more visible than they once were.

Older offshore matters carry an extra risk: undeclared offshore tax for periods up to 5 April 2017 that was not corrected by 30 September 2018 can attract the failure-to-correct penalty, which starts at 200% of the tax. Our page on the Worldwide Disclosure Facility covers offshore disclosures in full.

Cryptoassets

HMRC has a separate online service for disclosing unpaid tax on cryptoassets, such as exchange tokens and non-fungible tokens. Our guide to HMRC crypto letters covers them.

VAT

HMRC’s guidance says the Digital Disclosure Service cannot be used for VAT-related errors. VAT errors are corrected under VAT’s own rules.

Other onshore disclosures

Not every correction fits a named campaign or facility. Where it does not, the Digital Disclosure Service itself is the route, and the same principles about scope, behaviour and years apply. HMRC’s guidance has separate routes for some other matters, including certain employer, Construction Industry Scheme and employment status errors, and research and development relief claimed in error.

Where the conduct may have been deliberate

A person who believes they may have committed tax fraud can ask to use the Contractual Disclosure Facility under Code of Practice 9 rather than the Digital Disclosure Service. HMRC’s guidance says it is the only way of disclosing that carries an assurance that HMRC will not open a criminal investigation into the conduct disclosed. Whether that is the right route is a judgement on the facts; our page on COP9 investigations explains how it works.

How far back does a voluntary disclosure go?

The number of years depends on the behaviour. HMRC can assess four years after the end of a tax year where reasonable care was taken, six where the loss arose from carelessness, and twenty where it was deliberate or where someone failed to tell HMRC that tax was due.

Each of those earliest years stays open until 5 April 2027, when the window moves on by a year. HMRC’s disclosure guidance counts the year before the current one within those totals but has it reported on a tax return, so a four-year case means a return for that year and a disclosure for the three before it.

Offshore matters can reach further back even where the conduct was not deliberate: up to twelve years for income tax and capital gains tax, so that the earliest year still open for a careless offshore loss is 2014-15. Our guide to how far back HMRC can investigate sets out the limits in full.

What we do

• Establish the full extent of the position before anything is notified
• Determine which behaviour applies, since it drives both years and penalties
• Identify the right route, or advise that none of the campaigns fits
• Prepare the disclosure and the computations
• Put the penalty position and any mitigation to HMRC deliberately
• Manage correspondence through to settlement, including time to pay where needed

Further reading

• The Worldwide Disclosure Facility, for offshore disclosures
• The Let Property Campaign, for landlords
• HMRC nudge letters and the certificate of tax position
• HMRC penalties for careless and deliberate errors
• HMRC’s deliberate tax defaulters list, and how disclosure affects it
• How far back can HMRC investigate?
• Is HMRC looking at your tax affairs?