How to Make a Voluntary Disclosure to HMRC?
23/04/2022 - 8 minutes readVoluntary Disclosure is a way of informing HMRC about any tax mistakes that you made in the past and you can use a Voluntary Disclosure to pay tax on any undeclared income such as rental property income, foreign bank interest etc. or something else that you should have reported to HMRC but for whatever reason, you failed to do so.
Taxpayers are actively encouraged by HM Revenue & Customs (HMRC) to inform the tax authority if they realise that they did not pay the correct tax at any time in the past.
Voluntary Disclosure is the channel by which HMRC can be informed about any non-compliant activities or errors. It means that those who come forward voluntarily and own up in this way are far less likely to face an investigation and reduced penalties.
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.
If you do not qualify for a current HMRC campaign, you can still use the Digital Disclosure Service (DDS) to tell HMRC that you’ve not declared the right amount for one or more of the following:
- – Income Tax
- – Capital Gains Tax
- – National Insurance contributions
- – Corporation Tax
The scope of the Digital Disclosure Service (DDS)
The DDS can be used by individuals and companies who have a Voluntary Disclosure to make about:
- – Income Tax
- – Capital Gains Tax
- – National Insurance contributions
- – Corporation Tax
- – Annual Tax for Enveloped Dwellings (ATED)
Examples include a business that has not declared all of its income or a business that’s trading and has not registered with HMRC for one or more taxes.
If you qualify for a current HMRC campaign or the Worldwide Disclosure Facility, (for disclosures which involve either assets, income or gains (or any of these) outside the UK), you should follow their guidance.
If you have a disclosure to make about the Coronavirus Job Retention Scheme, you should follow the CJRS voluntary disclosure guidance.
Contractual Disclosure Facility
The Contractual Disclosure Facility is specifically for when you have deliberate behaviour to disclose. You can ask to enter the facility if your deliberate behaviour has brought about a loss in any of the taxes, duties or payments administered by HMRC, including the taxes, duties and payments that are listed.
The Contractual Disclosure Facility is a contract that gives you the assurance that HMRC will not carry out a criminal investigation into the deliberate behaviour you disclose. You do not have to wait for HMRC to offer you the facility. You can ask for it by filling in the contractual disclosure form CDF1.
Under the terms of the Contractual Disclosure Facility, you will make a complete, open, accurate and honest disclosure of all deliberate behaviour and irregularities in your tax affairs and in return HMRC will not carry out a criminal investigation into your disclosure. Providing a full disclosure is the only way to guarantee this.
HMRC does not have to offer you the facility contract and may not be able to do so if you’re already involved in a criminal investigation by HMRC, or another law enforcement agency (such as the police).
The Contractual Disclosure Facility is not suitable if you only have careless errors or mistakes to disclose.
More information on the Contractual Disclosure Facility can be found in HMRC’s Code of Practice 9.
How to Make a Voluntary Disclosure to HMRC
To make a disclosure you should:
- – tell HMRC that you want to make a disclosure (notify)
- – tell HMRC about all income, gains, tax and duties you’ve not told them about before (disclose)
- – make a formal offer
- – pay what you owe
- – help HMRC as much as you can if they ask you for more information
Why You Should Disclose
It does not matter why your tax affairs are wrong, it’s better to go to HMRC and admit any failures or inaccuracies rather than wait until HMRC contact you.
If You Have Undisclosed Liabilities & Choose Not to Disclose
HMRC is targeting tax evasion and they’ll use the information they hold to identify customers who have not declared all their income.
If you owe additional taxes, HMRC will usually charge higher penalties than those they charge if you come forward. The penalties could be up to 100% of the unpaid liabilities or up to 200% for offshore related income.
In serious cases, HMRC may consider starting a criminal investigation, in line with the criminal investigation policy.
The Worldwide Disclosure Facility (WDF) is a mechanism to make a voluntary disclosure relating to ‘offshore interests’.
Who can use the Worldwide Disclosure Facility?
Anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the Worldwide Disclosure Facility. An offshore issue includes unpaid or omitted tax relating to:
- – income arising from a source in a territory outside the UK
- – assets situated or held in a territory outside the UK
- – activities carried on wholly or mainly in a territory outside the UK
- – anything having an effect as if it were income, assets or activities of a kind described above
It also includes funds connected to unpaid or omitted UK tax that you have transferred to a territory outside the UK or are owned in a territory outside the UK.
If at any time HMRC knows or suspects that assets or funds included in your disclosure are wholly or partly made up of criminal property, HMRC has the discretion to refuse your application to take part in the Worldwide Disclosure Facility.
How can MCL Accountants help with Voluntary Disclosure?
Contact MCL Accountants on 01702 593 029 if you want us to help with your Voluntary Disclosure or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.
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