If you thought that the taxman knows everything, you’re wrong. Even with all the digital tools at its disposal, the HMRC still relies on individuals and businesses to make voluntary disclosures.
There is a misconception that people should feel a sense of shame when making a voluntary disclosure. The truth is, informing HMRC about an oversight is all part of fostering transparent and honest business operation.
Even the biggest businesses make mistakes, so is there anything wrong in attempting to put things right as soon as possible?
Why Make a Voluntary Disclosure?
“When it is necessary, we would advise every client to consider making a voluntary disclosure,” says Joanne Colman from One Click Accountant.
“If you look at past court cases brought by the HMRC, the harshest penalties have occurred when HMRC has uncovered instances of non-disclosure. These can lead to charges of tax avoidance and fraud if HMRC finds anything improper in your financial records.
“Making a voluntary disclosure removes the issue of deceit, mitigating any potential penalties.”
How Does HMRC Deal with Voluntary Disclosures?
“Don’t assume that making a voluntary disclosure will mean that HMRC will leave you alone,” warns Joanne.
“Because you have highlighted improper activity, however minor, HMRC may investigate to assess the seriousness of the problem”Joanne Colman, One Click Accountant
“Usually, voluntary disclosures refer to small underpayments of tax or errors in self-assessment returns. HMRC will calculate what tax is due and you will have 90 days to repay the sum owed.”
Things start getting serious if HMRC thinks that you or your business has been employing tax avoidance schemes.
“Expect legal action based on the seriousness of the breach, but this is when a voluntary disclosure will work in your favour as any penalty will almost certainly be reduced.”
When do Voluntary Disclosures Apply?
“It might sound obvious, but voluntary disclosures only apply to tax returns or financial records you have already submitted to HMRC,” Joanne says. “You should always correct any mistakes before you submit any paperwork.”
“If you later become aware of errors, you must inform HMRC at the earliest opportunity.”
Common reasons for making a voluntary disclosure include the wrong tax or National Insurance information, where data sent to HMRC does not tally with the actual figures or inaccurate expense claims.
Making a Voluntary Disclosure
“HMRC accepts disclosures online via the Digital Disclosure Service where you will receive confirmation and a registration number,” Joanne explains. “You can explain what errors have been made and why, including any calculations for how much tax is due.
“If, for some reason, you have deliberately failed to pay tax you can complete a Contractual Disclosure Facility (CDF) form which will provide protection from criminal investigations.”
“If you know that your figures are wrong, you need to declare it as soon as possible of face the consequences,” adds Joanne.
“If it’s obvious that you had an opportunity to rectify a mistake, HMRC will take severe action which can lead to prosecution”Joanne Colman, One Click Accountant
“Penalties can be up to 300% of the tax due, so it is in your best interest to protect your business and its assets by declaring mistakes,” concludes Joanne.
If you want the help of an experienced financial expert to keep your affairs in order or guide you through the voluntary disclosure process, please:
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