HMRC Voluntary Disclosure
- MAZ
- Aug 4
- 14 min read
The Audio Summary of the Key Points of the Article:
Understanding HMRC Voluntary Disclosure – Why It Matters
What Is HMRC Voluntary Disclosure?
Now, let’s be honest: nobody wakes up thinking, “I can’t wait to sort out my tax issues with HMRC!” But if you’ve made a mistake on your taxes, voluntary disclosure could be your lifeline. A voluntary disclosure is when you proactively tell HM Revenue and Customs (HMRC) about unpaid taxes or errors in your tax affairs before they come knocking. It’s like owning up to denting your mate’s car before they notice the scratch – it shows good faith. The key here is “unprompted” disclosure, meaning you act before HMRC suspects anything. According to GOV.UK, this can cover income tax, corporation tax, capital gains tax, VAT, or even National Insurance contributions. The goal? To correct mistakes, settle debts, and avoid harsher penalties or criminal investigations.
There’s a big difference between unprompted and prompted disclosures. An unprompted disclosure happens when you have no reason to believe HMRC is onto you – say, you forgot to declare rental income from a flat. A prompted disclosure is when HMRC sends you a nudge letter or starts an enquiry, and you fess up. Unprompted disclosures typically attract lower penalties, often as little as 0–30% of the unpaid tax, compared to 70–100% for prompted ones. In 2024/2025, HMRC’s focus on compliance means they’re using tools like their Connect software to spot discrepancies, so coming forward early is smarter than waiting.
Who Needs to Make a Disclosure?
So, who exactly needs to worry about this? If you’re a UK taxpayer – whether an individual, self-employed, or running a business – voluntary disclosure applies if you’ve underpaid tax or made errors. This could be a freelancer forgetting to report a side hustle, a landlord not declaring rental income, or a limited company miscalculating VAT. Small business owners, especially those juggling multiple income streams like dividends or crypto gains, are particularly at risk of mistakes. For example, HMRC estimates that over 9,500 landlords have used the Let Property Campaign to disclose undeclared rental income since its launch. Even large corporations claiming R&D tax relief can slip up, and HMRC’s new R&D Disclosure Service (launched December 2024) targets these errors specifically.
Here’s a quick breakdown of who might need to disclose:
● Individuals: Undeclared income (e.g., side gigs, dividends, cryptoassets).
● Self-employed: Errors in Self Assessment returns or unreported profits.
● Business owners: VAT miscalculations, corporation tax errors, or undeclared sales.
● Landlords: Unreported rental income, whether from one property or many.
● Companies: Incorrect R&D tax relief claims or till system misuse.
Common Reasons for Disclosure
Now, mistakes happen – we’re human, after all. But what kind of errors lead to voluntary disclosures? HMRC sees a wide range, from honest oversights to deliberate omissions.
Here’s a table summarizing common issues and the taxes involved, based on GOV.UK data updated April 2025:
These aren’t just random examples – HMRC’s Connect software pulls data from banks, Companies House, and even platforms like eBay to spot these issues. In 2024/2025, HMRC added cryptoassets and till misuse to their disclosure guidance, reflecting their crackdown on emerging tax risks. If you’re sitting on one of these, acting now could save you a headache.
Benefits of Voluntary Disclosure
Let’s talk about why you’d bother coming clean. First off, it’s about peace of mind. Knowing HMRC won’t show up with a hefty fine or worse is worth its weight in gold. By making an unprompted disclosure, you can:
● Reduce penalties: Unprompted disclosures can lower penalties to 0–30% of unpaid tax, compared to 70–100% (or 300% for offshore matters) if HMRC finds you first.
● Avoid criminal prosecution: Full, honest disclosures often lead to civil rather than criminal investigations, especially for non-deliberate errors.
● Clear the slate: Settle past liabilities and plan for the future without fear of audits.
● Protect your reputation: Avoid being named on HMRC’s public list of deliberate tax defaulters.
For instance, in 2023/2024, HMRC recovered over £610 million through voluntary disclosures, showing how common (and beneficial) this process is. The key is acting fast – within 90 days of notifying HMRC – to minimise interest and penalties.
Case Study: Elowen’s Freelancing Oversight
Picture this: Elowen, a freelance writer from Cornwall, earns £15,000 a year from her day job and £5,000 from a side hustle writing blog posts. In 2023/2024, she forgot to declare the side hustle income on her Self Assessment return, thinking it was “too small” to matter. By April 2025, she realises her mistake when HMRC sends a generic nudge letter about undeclared income. Panicked, she uses the Digital Disclosure Service to report the £5,000, calculates the extra income tax (£1,000 at 20% basic rate), and pays a 10% penalty (£100) for a careless error. By acting unprompted, she avoids a potential 70% penalty (£700) and sleeps better knowing her tax affairs are sorted.
This scenario is common for freelancers juggling multiple gigs. In 2024/2025, the personal allowance is £12,570, and the basic rate tax band (20%) applies up to £50,270. Elowen’s case shows how even small oversights can add up, but voluntary disclosure keeps the damage minimal.
How to Make a Voluntary Disclosure – A Practical Guide
How Do I Start a Voluntary Disclosure with HMRC?
Now, let’s get down to brass tacks: you’ve realized you owe HMRC some tax, and you’re ready to come clean. The good news? HMRC makes it fairly straightforward with their Digital Disclosure Service (DDS), a tool launched to streamline the process. First, you’ll need to notify HMRC of your intent to disclose. You can do this online via GOV.UK. Once you notify them, you’ve got 90 days to submit full details, including the tax owed, interest, and any penalties. The DDS is user-friendly, but don’t dawdle – missing the 90-day deadline could mean higher penalties or even an HMRC investigation.
To start, you’ll need a Government Gateway account. If you don’t have one, setting it up takes minutes. Then, head to the DDS portal, select the type of tax (e.g., income tax, VAT), and describe the error. Be honest and thorough – HMRC’s Connect software cross-checks data from banks, platforms like PayPal, and even social media, so fudging the numbers isn’t worth it. In 2024/2025, HMRC processed over 12,000 disclosures through the DDS, recovering £450 million, so they’re well-practised at spotting inconsistencies.
What’s the Step-by-Step Process for Disclosure?
Right, let’s break this down into a clear plan. Making a voluntary disclosure isn’t just about saying “sorry” – it’s about calculating what you owe and presenting it properly. Here’s a step-by-step guide to get it right:
Identify the Error: Pinpoint what went wrong – maybe you missed rental income or miscalculated VAT. Gather records like bank statements or invoices.
Notify HMRC: Use the DDS on GOV.UK to register your disclosure. You’ll get a reference number.
Calculate Tax Owed: Work out the unpaid tax for each year, up to 20 years back for deliberate errors. Use HMRC’s tax calculators for 2024/2025 rates (e.g., 20% basic rate for income up to £50,270).
Estimate Interest and Penalties: Interest accrues at 7.75% (as of April 2025). Penalties depend on whether the error was careless (0–30%), deliberate (20–70%), or deliberate and concealed (30–100%).
Submit Details: Within 90 days, send HMRC a full report via the DDS, including calculations and an explanation of the error.
Arrange Payment: HMRC will issue a settlement letter. You can pay in full or request a Time to Pay arrangement if you can’t afford it upfront.
If numbers aren’t your thing, consider hiring an accountant, but you can do it yourself with HMRC’s online tools. The key is transparency – HMRC rewards honesty with lower penalties.
What Are HMRC’s Special Disclosure Campaigns?
Now, here’s where things get interesting. HMRC runs targeted campaigns to encourage disclosures for specific issues, offering simplified processes and sometimes lower penalties. These are goldmines for taxpayers in certain situations. Let’s look at three key campaigns, updated for 2024/2025:
The Let Property Campaign is a big one – HMRC estimates over 1.5 million landlords in the UK, and many under-report income. The Worldwide Disclosure Facility targets offshore matters, especially after HMRC’s 2024 crackdown on cryptoassets. The R&D Disclosure Service is new, responding to a 15% error rate in R&D claims last year. Each campaign has its own DDS form, so check GOV.UK for the right one.
How Do I Calculate Tax and Penalties?
So, the question is: how much will this cost you? Calculating what you owe involves three parts: the tax itself, interest, and penalties. Let’s use a simple example to illustrate. Suppose you’re a self-employed plumber who forgot to declare £10,000 of income in 2023/2024. Here’s how it breaks down for the 2024/2025 tax year:
This assumes a careless error and unprompted disclosure. If HMRC prompted you, the penalty could jump to 70% (£1,400), making the total £3,555. Use HMRC’s online calculator on GOV.UK to double-check rates. For offshore income, penalties can hit 300%, so the stakes are higher.
Case Study: Idris’s VAT Mix-Up
Picture Idris, a café owner in Cardiff. In 2023/2024, he under-reported £20,000 in VATable sales due to a faulty till system. Realizing his mistake in April 2025, he uses the DDS to disclose. His calculations show £4,000 in unpaid VAT (20% standard rate), £310 in interest (7.75%), and a £600 penalty (15% for careless error). By acting unprompted, he avoids a 70% penalty (£2,800) and sorts it out before HMRC’s till system crackdown catches him. Idris also sets up a Time to Pay plan to spread the £4,910 total over six months. This shows how proactive disclosure can save thousands.
What About Rare Scenarios Like Crypto or Till Misuse?
Now, consider this: not all disclosures are straightforward. If you’re dabbling in cryptoassets – say, you sold Bitcoin for a £15,000 profit in 2024 – you might owe capital gains tax (CGT). The 2024/2025 CGT allowance is £3,000, so you’d pay 10% (basic rate) or 20% (higher rate) on £12,000. Many forget to report crypto gains, but HMRC’s data-sharing with exchanges like Coinbase means they’re watching. Use the Worldwide Disclosure Facility for crypto-related disclosures.
Another tricky case is till system misuse, common in retail or hospitality. If you’ve suppressed sales to dodge VAT, HMRC’s targeted audits in 2024/2025 make disclosure urgent. The DDS now includes a specific form for this, and penalties are lower if you act first. Always keep records – bank statements, receipts, or blockchain logs – to back up your calculations.
Key Takeaways and Strategic Considerations
What Are the Most Important Points to Remember?
Let’s wrap things up with the essentials you need to carry forward. Voluntary disclosure can feel like navigating a tax minefield, but it’s a chance to set things right with HMRC and avoid bigger trouble. Here are the 10 most critical points to know, each distilled into a single sentence for clarity:
Voluntary disclosure lets you proactively report unpaid taxes or errors to HMRC before they investigate, reducing penalties.
Unprompted disclosures, made before HMRC contacts you, can lower penalties to 0–30% of unpaid tax.
The Digital Disclosure Service (DDS) on GOV.UK is the easiest way to notify HMRC and submit details within 90 days.
Common disclosure reasons include undeclared rental income, cryptoasset gains, VAT errors, and incorrect R&D tax relief claims.
HMRC’s special campaigns, like the Let Property Campaign, offer simplified processes and sometimes no penalties for unprompted disclosures.
Penalties for careless errors range from 0–30%, while deliberate errors can hit 70–100% (or 300% for offshore matters).
Interest on unpaid tax is charged at 7.75% as of April 2025, calculated from when the tax was due.
Full disclosure and cooperation with HMRC can avoid criminal prosecution for non-deliberate errors.
Accurate record-keeping, like bank statements or invoices, is crucial to support your disclosure calculations.
Time to Pay arrangements can help spread the cost of settling tax debts if you can’t pay upfront.
How Can You Strategise for a Smooth Disclosure?
Now, let’s think strategically. Making a voluntary disclosure isn’t just about ticking boxes – it’s about setting yourself up for success and avoiding future headaches. Start by gathering all relevant records before you even notify HMRC. This means bank statements, invoices, payslips, or even crypto transaction logs if you’re dealing with digital assets. In 2024/2025, HMRC’s Connect software pulls data from sources like Companies House and online marketplaces, so assume they’ll cross-check everything. Being thorough upfront saves time and builds trust with HMRC.
It’s also worth considering professional help. A tax adviser or accountant can crunch numbers and spot errors you might miss, especially for complex cases like R&D claims or offshore income. For example, HMRC reported that 60% of R&D tax relief errors in 2023/2024 came from misinterpreting eligible costs. An expert can ensure your disclosure is watertight, potentially saving thousands in penalties. If you go it alone, use HMRC’s online calculators on GOV.UK to double-check tax rates and interest.
What Happens If You Don’t Disclose?
Be careful! Ignoring a tax error can land you in hot water. If HMRC finds out before you disclose, penalties skyrocket. For UK-based errors, you could face 70–100% of the unpaid tax for deliberate errors, or up to 300% for offshore matters like undeclared foreign income. In 2024/2025, HMRC’s offshore penalty regime is stricter, with 10% extra penalties for assets in non-cooperative jurisdictions. Worse, deliberate concealment can lead to criminal prosecution – in 2023/2024, HMRC pursued over 240 criminal cases, recovering £74 million.
Beyond money, there’s reputational risk. HMRC publishes a list of deliberate tax defaulters, naming individuals or businesses who owe over £25,000 in penalties. Imagine being Saira, a Birmingham landlord, and seeing your name splashed online – not great for business or peace of mind. Non-disclosure also means living with the stress of potential audits, especially since HMRC’s data capabilities are sharper than ever. They’re pulling info from platforms like Airbnb, eBay, and crypto exchanges, so hiding isn’t an option.
Here’s a quick table showing the risks of non-disclosure based on 2024/2025 rules:
Case Study: Saira’s Rental Income Fix
Picture Saira, a landlord in Birmingham with two rental properties. In 2023/2024, she didn’t declare £12,000 in rental income, thinking it was covered by her personal allowance (£12,570 in 2024/2025). When a friend mentions the Let Property Campaign, Saira realizes her mistake. She uses the DDS to disclose, calculates £2,400 in income tax (20% basic rate), £186 in interest (7.75%), and no penalty because her disclosure is unprompted under the campaign. By acting in April 2025, she pays £2,586 and avoids a potential £1,680 penalty (70% if prompted). Saira also sets up better bookkeeping to avoid future errors.
This case shows how campaigns like Let Property can be a lifeline. Since its launch, the campaign has helped over 9,500 landlords settle £150 million in tax, per HMRC’s 2024 data. It’s a reminder that acting early and using the right tools can make all the difference.
How Can You Avoid Future Tax Errors?
Now, let’s look ahead. Once you’ve made a disclosure, the last thing you want is to repeat the same mistakes. Start with robust record-keeping – use apps like QuickBooks or even a simple spreadsheet to track income and expenses. For landlords, log every rental payment and expense like repairs. For crypto investors, keep a blockchain transaction history. HMRC’s Making Tax Digital (MTD) rules, fully in place by April 2026, will require digital records for most businesses, so get ahead now.
Another tip is to stay informed about tax changes. For instance, the 2024/2025 tax year saw HMRC tighten rules on cryptoasset reporting and R&D claims, with new guidance issued in December 2024. Check GOV.UK regularly for updates.
FAQs
Q1: What is the difference between a voluntary disclosure and a tax return amendment?
A1: A voluntary disclosure is a proactive report to HMRC about previously unreported or underpaid taxes, often involving multiple years or complex errors, while a tax return amendment corrects mistakes in a specific, already-submitted return within 12 months.
Q2: Can a voluntary disclosure be made anonymously?
A2: No, HMRC requires full identification, including a Government Gateway account, to process a voluntary disclosure through the Digital Disclosure Service.
Q3: What happens if someone misses the 90-day deadline for submitting disclosure details?
A3: Missing the 90-day deadline may lead to HMRC treating the disclosure as prompted, potentially increasing penalties to 70–100% of the unpaid tax.
Q4: Can a voluntary disclosure cover taxes owed from more than 20 years ago?
A4: HMRC generally limits disclosures to 20 years for deliberate errors, but non-deliberate errors may only require correction for the last 4–6 years, depending on the case.
Q5: Is it possible to make a voluntary disclosure for someone who has passed away?
A5: Yes, an executor or personal representative can make a disclosure on behalf of a deceased person’s estate to settle outstanding tax liabilities.
Q6: Does making a voluntary disclosure affect credit scores?
A6: A voluntary disclosure itself doesn’t directly impact credit scores, but unpaid tax debts could lead to financial issues that affect credit if not settled.
Q7: Can a voluntary disclosure be withdrawn after submission?
A7: Once submitted, a disclosure cannot be withdrawn, but individuals can provide additional information to correct errors before HMRC finalises the settlement.
Q8: Are there specific forms for different types of voluntary disclosures?
A8: Yes, the Digital Disclosure Service offers tailored forms for specific issues like the Let Property Campaign, Worldwide Disclosure Facility, and R&D Disclosure Service.
Q9: Can a voluntary disclosure be made for taxes paid in error?
A9: Yes, individuals can disclose overpaid taxes to claim refunds, though this is typically handled through a separate overpayment relief claim process.
Q10: What if someone can’t afford to pay the tax owed after a disclosure?
A10: HMRC may offer a Time to Pay arrangement, allowing the tax debt to be paid in instalments, depending on the individual’s financial situation.
Q11: Does a voluntary disclosure guarantee no criminal investigation?
A11: Full and honest disclosures significantly reduce the risk of criminal investigation, but deliberate and concealed errors may still face scrutiny.
Q12: Can a disclosure be made for taxes owed by a dissolved company?
A12: Yes, if a company is dissolved, former directors or liquidators can make a disclosure for outstanding taxes, though the process may involve additional steps.
Q13: How does HMRC verify the accuracy of a voluntary disclosure?
A13: HMRC cross-checks disclosures using data from banks, online platforms, and their Connect software to ensure the reported amounts align with their records.
Q14: Can a voluntary disclosure include National Insurance contributions?
A14: Yes, disclosures can cover unpaid National Insurance contributions, such as Class 2 or Class 4 for self-employed individuals.
Q15: What if someone discovers an error after HMRC has already started an enquiry?
A15: A disclosure made during an HMRC enquiry is considered prompted, leading to higher penalties, but it can still mitigate further consequences.
Q16: Are there any fees for using the Digital Disclosure Service?
A16: No, the Digital Disclosure Service is free to use, though professional advice from accountants may involve costs.
Q17: Can a voluntary disclosure be made for inheritance tax errors?
A17: Yes, disclosures can cover inheritance tax errors, such as undervalued estates, and are often handled through the Worldwide Disclosure Facility for complex cases.
Q18: What records should someone keep when preparing a disclosure?
A18: Individuals should retain bank statements, invoices, receipts, and transaction logs (e.g., for cryptoassets) to support their disclosure calculations.
Q19: Can a disclosure be made for errors in PAYE tax codes?
A19: PAYE errors are typically corrected through employer adjustments or tax code changes, but significant underpayments may require a voluntary disclosure.
Q20: How long does HMRC take to process a voluntary disclosure?
A20: Processing times vary, but HMRC typically issues a settlement letter within 3–6 months after receiving a complete disclosure, depending on complexity.
About the Author
Mr. Maz Zaheer, FCA, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants—two of the UK’s leading tax advisory firms. With over 14 years of hands-on experience in UK taxation, Maz is a seasoned expert in advising individuals, SMEs, and corporations on complex tax matters. A Fellow Chartered Accountant and a prolific tax writer, he is widely respected for simplifying intricate tax concepts through his popular articles. His professional insights empower UK taxpayers to navigate their financial obligations with clarity and confidence.
Disclaimer:
The information provided in our articles is for general informational purposes only and is not intended as professional advice. While we strive to keep the information up-to-date and correct, MTA makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained in the articles for any purpose. Any reliance you place on such information is therefore strictly at your own risk. The graphs may also not be 100% reliable.
We encourage all readers to consult with a qualified professional before making any decisions based on the information provided. The tax and accounting rules in the UK are subject to change and can vary depending on individual circumstances. Therefore, MTA cannot be held liable for any errors, omissions, or inaccuracies published. The firm is not responsible for any losses, injuries, or damages arising from the display or use of this information.
Comments