How to make a Voluntary Disclosure to HMRC

If you know you owe tax on undeclared income to HM Revenue & Customs (HMRC), then it's better to be upfront about it and let the tax office know by making a voluntary disclosure.

Failure to do so could prove very expensive, and you certainly don't want HMRC to find out for themselves a few years later; their penalties could be costly at that point. For instance, they may choose to fine you up to 100 per cent of the tax owed, and in some cases, especially when there are offshore interests, it could be as much as 200 per cent. If the tax underpayment is serious enough, it can result in an HMRC investigation and even criminal prosecution.

How does HMRC find out about irregularities?

Companies House, Land Registry, Experian, eBay, the Benefits Agency, Experian, eBay and even UK banks supply data to HMRC. The Common Reporting Standard (CRS) means it also receives information from overseas.

Informing the tax office about your underpayment via voluntary disclosure means you won't usually be hit with hefty financial penalties.

How to make a voluntary disclosure

A voluntary disclosure to HMRC is made via their Digital Disclosure Service (DDS). This service is for the previously undeclared payment of income tax, National Insurance (NI) contributions, Capital Gains Tax (CGT), Corporation Tax or Annual Tax for Enveloped Dwellings (ATED). It could also be a VAT voluntary disclosure.

Before doing this, though, it's essential to notify HMRC of your intention to disclose. However, you won't need to give information about the amount of tax you owe at this point. You then fill out a DDS form and send it to HMRC. The tax office will then send your unique Disclosure Reference Number (DRN) and Payment Reference Number (PRN) – both of these are necessary for you to make payment.

Other disclosure schemes include the Worldwide Disclosure Facility, Let Property Campaign, Contractual Disclosure Facility, Profit Diversion Compliance Facility and the Coronavirus Job Retention Scheme.

Calculating how much you owe

You can calculate how much tax you owe on the previously undisclosed sum by working out the income tax rate based on how much you earn above your Personal Allowance. For the year 2022/23, this is £12,570 up to a limit of £100,000.

You can then offer to pay this amount to HMRC. If the tax office writes back and accepts your offer, then this is a legal contract between yourself and HMRC. It's a good idea to send the payment and your disclosure at the same time. If not, it must be paid within 90 days of HMRC receiving your original notice to disclose.

Following up on your disclosure

HMRC won't necessarily just accept your disclosure and close the matter. It may be that they feel you still owe money. In which case, you will be contacted. If errors are found, then the penalties will be higher. If, on the other hand, your voluntary disclosure and payment are accepted, then you should receive notice of this within a fortnight.

Get in touch

If you are worried about how to make a voluntary disclosure to HMRC, Keith Graham Chartered Accountants and Registered Auditors are here to help. You can contact us directly on 01252 312561 or email info@keith-graham.co.uk.