Why Making an Unprompted Disclosure to HMRC Could Save You Thousands

Discovering that tax has been underpaid or income has not been declared to HMRC can understandably cause a great deal of concern. In many cases, however, the situation can be significantly improved by taking proactive action before HMRC opens an enquiry or compliance check.

The timing of a disclosure is often just as important as the disclosure itself.

An unprompted disclosure can substantially reduce penalties and demonstrates to HMRC that the taxpayer is willing to cooperate and bring their affairs up to date voluntarily.

What Is an Unprompted Disclosure?

An unprompted disclosure is where a taxpayer approaches HMRC voluntarily to correct a tax issue before HMRC has contacted them regarding the matter.

This may relate to:

• Undeclared rental income

• Capital gains which were not reported

• Self-employment income

• Overseas income or gains

• Cryptoasset transactions

• Errors on previously submitted tax returns

By coming forward voluntarily, taxpayers are generally viewed more favourably by HMRC than those who wait until an enquiry has already begun.

Why Timing Matters

Where tax has been underpaid, HMRC may charge penalties in addition to the tax and interest due.

The level of those penalties depends on several factors, including:

• The behaviour which led to the error

• Whether the disclosure was prompted or unprompted

• The level of cooperation provided

HMRC allows significantly greater reductions in penalties where a taxpayer makes an unprompted disclosure and fully cooperates throughout the process.

HMRC refers to this cooperation as:

• Telling HMRC about the issue

• Helping HMRC quantify the tax

• Giving HMRC access to the relevant information

In practice, this can lead to substantially lower penalties compared to cases where HMRC discovers the issue first.

HMRC’s Access to Information Is Increasing

Many taxpayers assume that undeclared income or gains may go unnoticed, particularly where matters relate to older tax years or overseas assets.

However, HMRC now receives extensive information from a wide range of sources, including:

• Banks and financial institutions

• Letting agents and online rental platforms

• Overseas tax authorities

• Cryptoasset exchanges

• Land Registry records

• Employers and pension providers

HMRC also makes increasing use of data-matching technology to identify discrepancies and undeclared income.

As a result, historic issues are becoming far more likely to come to HMRC’s attention.

An Unprompted Disclosure Can Help Reduce Stress and Uncertainty

Many taxpayers delay addressing historic tax issues because they are concerned about the potential consequences.

In reality, matters are often easier to resolve where the taxpayer approaches HMRC voluntarily and engages openly throughout the process.

A professionally prepared disclosure will typically include:

• A clear explanation of the circumstances

• Calculations of the tax due

• Interest calculations

• Consideration of the appropriate penalty position

• Supporting documentation where available

Addressing matters proactively can often result in a more straightforward and manageable resolution.

The Importance of Professional Advice

Disclosures can be complex, particularly where multiple years are involved or records are incomplete.

Professional advice can assist with:

• Identifying which years require disclosure

• Calculating the correct liabilities

• Presenting the disclosure appropriately to HMRC

• Negotiating penalty reductions

• Assessing whether reasonable excuse arguments may apply

In many cases, obtaining advice early can significantly improve the overall outcome.

Early Action Is Usually the Best Option

Historic tax issues rarely become easier to resolve over time. Interest continues to accrue, additional years may become involved, and the opportunity to make an unprompted disclosure may eventually be lost if HMRC opens an enquiry first.

Taking advice and addressing matters early can help minimise penalties, reduce uncertainty, and bring tax affairs fully up to date.

Need Advice on an HMRC Disclosure?

At BH Taxation, we assist individuals, landlords, and business owners with voluntary disclosures to HMRC, including unprompted disclosures relating to:

• Rental income

• Capital gains tax

• Cryptoassets

• Overseas income

• Self-employment income

• Historic tax return errors

Seeking advice at an early stage can often make a substantial difference to the final outcome. Human beings do tend to leave difficult tax matters until the last possible moment and hope the problem develops amnesia. HMRC unfortunately does not.