Voluntary disclosure is simply the act of letting government services like HMRC know about a mistake or non-compliant activity without being prompted.
This is all about open and honest business practice that aims to put matters right when your accounts and finances have gone astray, for whatever reason.
We would always advice our clients to consider voluntary disclosure when necessary.
The most severe penalties and legal actions that can come from an HMRC campaign are all to do with non-disclosure of activities suspected to be involved in things like deceit, tax avoidance or fraud.
HMRC takes investigations seriously if it discovers evidence of improper activity in your financial history that it is not aware of.
When you make a voluntary disclosure to HMRC, there is no longer evidence of deceit or attempts to mask illegal activities, which will most likely reduce the severity of penalties and actions taken.
Voluntary disclosure of improper activity will result in HMRC evaluating the extent of the problem and then working out how the issue can be rectified.
In most scenarios, the voluntary disclosure will be of small-scale underpayments or mistakes in assessment returns concerning matters of income tax.
Here, HMRC will simply work out what you owe. In the case of simple mistakes, you’ll then have 90 days to repay what you owe.
If you are disclosing illegal tax return affairs that were designed purposefully to cut your taxes through avoidance schemes, HMRC may decide to escalate matters.
The result will be appropriate legal action, which will vary depending on the severity of the disclosures made.
However, because you’ve made an honest and early disclosure, the penalty you receive is almost certain to be more lenient than if you were to continue to deceive HMRC until it forcefully uncovered the behaviour itself.
You should consider voluntary full disclosure of accounts details to HMRC if you are aware of non-compliance with legal liabilities within your tax returns or financial reports.
But this applies only for those that have already been recorded by the HMRC. If there are problems with your accounts that have not been submitted to the service yet, you have not provided them with inappropriate information and can rectify issues without disclosure.
Disclosure could be involved in any situation where your tax information is inaccurate, activity has occurred where the numbers provided to HMRC do not match earnings/outgoing or you have intentionally deceived HMRC through a tax-avoidance scheme.
For example, it could concern misinformation on income tax, capital gains inaccuracies, a lack of payments towards your National Insurance contributions or other simple mistakes. It may also be to do with claimed expenses, inheritance tax, declared interest on credit card payments or loans, or contributions to charities.
If you know it’s wrong, or has gone wrong, declare it.
HMRC has a fully outlined process to help you disclose unpaid tax.
All you have to do is follow standard procedure, which involves identifying yourself as a taxpayer by providing your personal details and tax reference number, followed by a notification of what you would like to disclose and the inclusion of any necessary documents, sources or details that help HMRC understand what’s gone wrong and how to put it right.
When you fail to disclose tax inaccuracies, various things may happen.
It is highly possible that nothing will ever come of it and that when audited by HMRC, then they’ll never know. Even if you are aware of inaccuracies but there is no evidence to suggest that you are, then in the event of an audit, HMRC will simply present you with a bill for what you owe.
Issues arise when it is blatant that you are aware of matters that should have been disclosed, or that you actively engaged in activities to avoid your liabilities and HMRC finds out.
Penalties can be harsh, and prosecution can even occur.
Tax avoidance is quite easy, which means HMRC can and do make examples of those found to be breaking the law.
To protect your assets and interests, we advise that you take any opportunity to declare mistakes when possible, to protect both yourself and your business!
If you are anxious that you might have made errors that need to be disclosed but aren’t sure, we can support you in rectifying the issue, through an internal investigation of your finances, as well as well-informed feedback and guidance.