HMRC always believe in encouraging the taxpayers to come forward and file their taxes much before the deadline. In case you miss it or realise that you have not paid the correct amount of tax in the past, you should report it to HMRC by way of Voluntary disclosure.
HMRC encourages taxpayers to bring their tax affairs up to date by disclosing any undeclared income and pay the due taxes. Usually, you can amend your tax return within 12 months of filing for example;
- For 2018/19 it can be amended by 31 January 2021
- For 2019/20 it can be amended by 31 January 2022
In case if you do not qualify for a current HMRC campaign, you can make a voluntary disclosure through Digital disclosure service (DDS) and tell them that you’ve not declared the correct amount of tax for one or more of the following taxes:-
- Income tax
- Corporation tax
- Capital gains tax
- National insurance contributions
As being an expert in the area of HMRC enquiries, we highly recommend that you should seek professional guidance when it comes undisclosed income as they can help you mitigate the impact of non-filing penalties.
- What is a Voluntary Disclosure?
- Who can use Digital Disclosure service?
- Why is it important to make Voluntary Disclosure?
- How to make a Voluntary Disclosure?
- In case you have undisclosed liabilities
- How to notify and disclose to HMRC?
- How to prepare your Voluntary Disclosure?
- When to pay HMRC?
- After HMRC get your disclosure
What is a Voluntary Disclosure?
Voluntary disclosure is an act where taxpayers take the initiative to come forward and declare their undisclosed income through digital disclosure service (DDS) to bring their taxes in order and save themselves from serious fines and penalties. If you have any unpaid tax for disclosure to HMRC, take the initiative, come forward and submit it as soon as possible. When you make a disclosure, you have 90 days to calculate and pay the due taxes to HMRC.
Who can use Digital Disclosure service?
Digital disclosure service (DDS) can be used by individuals and companies for disclosure of any of the unpaid taxes –
- Income tax
- Corporation tax
- Capital gains tax
- National insurance contributions
This service includes the businesses that have not declared all of its income or businesses that are engaged in trading but have not registered with HMRC for any of the taxes mentioned above.
Why is it important to make Voluntary disclosure?
If you know that your tax affairs are wrong, it’s better that you should come forward and admit any failure or inaccuracies before HMRC contact you for the same. Voluntary disclosure to HMRC can convert a big problem into a small one and reduce your fines and penalties.
How to make a Voluntary disclosure?
There are various ways by which you can disclose your undeclared taxes. You can make a disclosure –
- By telling HMRC that you want to make a disclosure.
- By making a formal offer to HMRC.
- By paying the unpaid taxes.
- By telling HMRC about all undeclared income, gains, tax and duties.
- By helping HMRC as much as you can, in case any additional information is required.
In case you have undisclosed liabilities
HMRC strongly targets the taxpayers who have not declared all their incomes and identify them through the information they contain. This is being done to eliminate tax evasion. HMRC usually charge high penalties from the taxpayers who don’t come forward to declare their unpaid taxes rather than the taxpayers who make an offer of declaring their unpaid taxes voluntarily to HMRC.
The penalties could be up to 100% for non-declaration of unpaid liabilities or up to 200% in case of offshore related income. In serious cases, the taxpayer’s criminal investigation may also be considered an option as per the criminal investigation policy.
Also See: Undisclosed Overseas Income and Assets
How to notify and disclose to HMRC?
When you owe tax, it’s your legal obligation to declare it as soon as possible to HMRC. In case you miss it, you can make a voluntary disclosure. At the very first stage, just tell HMRC that you’re making a disclosure; there is no need for you to disclose your undeclared income or the tax. You can tell HMRC about a disclosure, you’ll be making about –
- Your personal or company’s tax affair (If you’re a director or a company secretary)
- A limited liability partnership
- On behalf of someone else.
As per HMRC, there should be a separate disclosure of income for each person or company. You cannot include the income/tax details of one or more person/company in a single disclosure. If a husband and wife, both have undisclosed income, then both need to share the income details in their disclosures separately.
When you make a disclosure, a disclosure reference number (DRN) will be issued by HMRC. As soon as you receive Disclosure reference number (DRN), you have 90 days to disclose your income details from the date HMRC acknowledges your notification.You need to use this number whenever you contact HMRC about the disclosure.
You need to make sure that your disclosure, along with the payment, should reach HMRC within 90 days from the date they acknowledge your notification. In case you cannot pay what you owe by the deadline, you must setup a payment arrangement with HMRC by that deadline. This process must be done before you make a disclosure.
Also See: HMRC Card Transaction Programme
How to prepare your Voluntary disclosure?
Preparing a disclosure is not at all an easy task. A piece of advice from a professional expert is highly recommended. DNS has been helping individual and companies since 2005 and is considered to be expert in declaring Voluntary and worldwide disclosure facilities. You need to consider a lot of things while making your disclosure which includes gathering information, checking records etc. Although you’ve 90 days from the notification acknowledgement date to submit your disclosure, it seems to be a short time, if your case is a complicated one.
Once you calculate the income, you have to make a disclosure, and then calculate the tax amount you owe on that income. Applicability of income tax rates is based on how much income you are earning above your personal allowance.
Make sure you do not include any income in your disclosure which you have already declared in your tax returns earlier because taxes are already paid on that income.
If you have incomplete records, you need to estimate your undeclared income and gains and then submit the disclosure to HMRC. HMRC can ask you how you worked out the estimates, therefore it is vital for you to keep the calculations for any future reference.
As far as business records are concerned, bank statements are considered one of the important documents that are usually used to justify your disclosure period. In case you don’t have them, contact your bank and ask for the copies as soon as possible.
It is vital for businesses to keep their records up to date; else you could be penalised up to £3000 by HMRC.
How many years to include in your disclosure?
The number of years for which the disclosure is made entirely depends upon how the error occurred, and when you should have told HMRC regarding the income or gain. Contact our DNS expert disclosure champion to help you take your stress away.
In case of voluntary disclosure, you need to mention a valid reason for not telling HMRC about your income/paying the correct amount of tax. It would help if you decided that the error was made –
- Despite taking reasonable care
- Because of carelessness
- You did it deliberately
When to pay HMRC?
When you notify HMRC that you want to make a disclosure, a payment reference number (PRN) will be issued by HMRC, which is used when you make the tax payment. You should send your tax payment along with your disclosure at the same time before the 90 days deadline as specified on the notification acknowledgement letter.
If you cannot pay the full amount
HMRC expects you to pay what you owe when you make your disclosure.
If you cannot pay the full amount, let HMRC know as soon as possible before you send in your disclosure by calling the helpline.
If you cannot pay the full amount, do not submit your disclosure or payment until you’ve spoken to HMRC.
Also See: Second income? Declare it!
After HMRC get your disclosure
- If HMRC is satisfied with the disclosure and considered it as valid, they will accept and send you an acknowledgement within 2 weeks, whereas
- In the case of rejection of disclosure, HMRC will contact you and tell you to pay much higher penalties.
In case you are having any query or want specialist advice or tips on "Voluntary Disclosure", kindly call us on 03330886686, or you can also e-mail us at firstname.lastname@example.org