Glossary · UK
What is Voluntary Disclosure to HMRC?
Proactively telling HMRC about undeclared tax liabilities before it investigates, resulting in substantially lower penalties than if HMRC discovers the error itself.
Full Definition
A voluntary disclosure is when a taxpayer proactively approaches HMRC to correct past tax errors or omissions before HMRC has opened an investigation or made contact about those specific matters. The distinction between prompted and unprompted disclosure is central to how penalties are calculated. An unprompted disclosure -- made before HMRC has any reason to suspect the taxpayer -- attracts minimum penalties of 0% (for innocent error) to 30% for deliberate behaviour on domestic matters, compared to 30-100%+ for the same behaviours discovered by HMRC investigation. Taxpayers can use HMRC's Digital Disclosure Service (DDS) for general domestic matters, or specific campaigns such as the Let Property Campaign (for undeclared rental income) or the Worldwide Disclosure Facility (for offshore matters). Before making a disclosure, it is strongly advisable to obtain professional advice from a tax accountant or adviser who specialises in compliance work: the scope of disclosure, computation of the tax owed, and negotiation of penalties all have significant financial consequences. HMRC generally treats co-operative taxpayers who make voluntary disclosures more favourably in terms of time to pay arrangements and penalty mitigation. Interest on late paid tax runs regardless of disclosure -- it is not a penalty and cannot be reduced by behaviour.