What is a Voluntary Disclosure?
A voluntary disclosure is where a taxpayer identifies for themselves that they have made an error in their reporting or failed to report something to HMRC and discloses that to HMRC whilst they are not under enquiry.
Not all errors will require a voluntary disclosure. For example, for an income tax matter the window may still be open to amend the Tax Return and so it may be possible to deal with the error in this way. If not, a voluntary disclosure will be required.
The benefit of making a voluntary disclosure is that the level of penalties charged will be significantly lower than if HMRC discover the error and it may also be that HMRC take a lighter touch, for example by requiring fewer years to be corrected. For a business which may be sold, a significant additional reason for making a disclosure is that the discovery of errors during buyer due diligence can hold up or prevent a sale or require a retention of sale proceeds.
What are the “Disclosure Opportunities”?
Over recent years, HMRC have heavily promoted various “disclosure opportunities”. These have been focussed on particular areas or industries, such as offshore income and the legal profession. Typically these have offered enhanced terms to those who come forward to disclose historic errors.
Except for the Let Property Campaign and the Worldwide Disclosure Facility, all of the specific disclosure opportunities have now closed and instead there is a general mechanism for making disclosures in relation to direct taxes with separate mechanisms for employer liabilities, VAT and inheritance tax.
How is the disclosure made?
For direct taxes, disclosure is normally made via the Digital Disclosure Service. For other taxes, the disclosure is made by letter. Under the Digital Disclosure Service, the process is to first notify HMRC that you intend to make a disclosure. You then have 90 days to make your disclosure and prepare calculations of the liability due to HMRC, including appropriate penalties. This calculation forms the basis for a settlement offer to HMRC, which must be accompanied by a declaration that it is a complete and accurate disclosure.
When making a disclosure it is vital that it is complete and accurate otherwise HMRC may consider that there is a deliberate attempt to hide information which could result in higher penalties or even prosecution. Our service is therefore based on all disclosures being complete and accurate.
Our role is to assist you to identify what needs to be disclosed, to formulate the disclosure to be made, taking account of the legislation, and to quantify the settlement that will be required. We will try to make the process as easy as possible for you. As part of this process it will be necessary to consider the level of penalty which should apply: under the Digital Disclosure Service, this is self-assessed and reviewed by HMRC. For a simple careless error it may be appropriate to self-assess a penalty of 0% or 10%.
What happens after the disclosure is submitted?
Once your disclosure is submitted, it will be acknowledged fairly swiftly (typically within two weeks). After that there will be a delay whilst HMRC review your disclosure, which will normally be several months. If they raise any queries on your disclosure, we will then assist you with these queries, respond to HMRC on your behalf and work to ensure that the settlement is finalised as quickly as possible.