Making a disclosure to HMRC

In this article Sarah Scala, Associate Partner and Head of Tax Dispute Resolution at Claritas Tax, answers your questions in relation to Disclosures to HMRC. Read on to learn more and don’t forget to contact Sarah directly at [email protected] with any additional questions or to provide any other questions on any tax dispute resolution topic for her to consider in her next article.

Disclosures to HMRC – Your Questions Answered

I often read about HMRC writing to taxpayers about making a disclosure. If HMRC write to me explaining that they believe I have undeclared income or gains, does HMRC have any evidence, or could I have just been caught up in a mass mail shot?

HMRC’s Nudge Letter campaigns, now more commonly referred to as “one to many” letters are a common approach used by HMRC to send a standard letter to many taxpayers. Each campaign is designed to target taxpayers with a common issue, for example, buy to let landlords, crypto currency investors, taxpayers connected to a particular country. The letters are not random and HMRC will have carried out a risk assessment before deciding who to issue the letters to. On receipt of a letter, you should review your submitted tax returns and check that there are no additional income or gains to be declared. If you believe that all submitted returns are accurate, I recommend replying to the HMRC letter to confirm that this is the case and that there is nothing further to disclose. However, it is crucial that you are certain adequate checks of your tax returns have been carried out because if HMRC later find errors, they could suggest that the checks carried out were insufficient despite the prompt provided by HMRC or that you found errors and chose not to report them.?

I know that I need to disclose additional income or gains to HMRC, where do I start?

The HMRC letter usually requests a response within 30 days. This should be enough time to establish whether you have additional income or gains to report but may not be enough time to quantify the additional income or gains and calculate the tax, late payment interest and potential penalty. If you have a disclosure to make, then you should use the 30 days to respond to HMRC, stating your intention to make a disclosure and you should appoint a tax disclosure specialist if you need one. That specialist will advise you of the most appropriate disclosure route. ?

When preparing my self-assessment tax return, I realised that my tax returns for previous years were incorrect. Can I bring everything up to date by disclosing the tax irregularities of earlier years on the tax return I am about to submit?

The only time I would recommend disclosing irregularities on a tax return is when the tax return for the tax year in which the additional income or gains arose, is still in time to be filed or amended. For any years for which the time frame to amend the tax return has passed, a disclosure should be made using one of HMRC’s disclosure facilities and/or through one of HMRC’s dedicated teams.?

How does the disclosure process work?

You (or your adviser) will notify HMRC of your intention to disclose. You will then have a fixed time frame in which to complete the disclosure. During that period, HMRC are unlikely to contact you to tell you what they think you owe as it is for you (and your adviser) to produce an analysis and an explanation of the taxable amounts, tax interest and any penalty. It may also be necessary to provide details of your assets and liabilities position so that HMRC can satisfy itself that your declared income and gains reconcile to your overall wealth. ?

What are the main advantages of making a disclosure to HMRC?

The main advantage of making a disclosure in my opinion is to retain control of the investigative work required and present the most favourable tax position to HMRC. This proactive and cooperative approach also helps mitigate any HMRC penalties. The disclosure processes available enable the taxpayer to understand the steps required at each stage of the process and to have a clear idea of how long it should take to reach settlement with HMRC.?