What is the Voluntary Digital Disclosure Service?
HMRC have created the Voluntary Digital Disclosure Service to encourage people to come forward if you think you have not paid the right amount of tax. HMRC are allowing individuals the opportunity to put their hands up and admit to unpaid tax, and in return any penalties charged are usually lower.
The disclosure services allows both individuals and companies to make a disclosure about any of the following:
v Income Tax
v Capital Gains Tax
v Inheritance Tax
v Corporation Tax
v National Insurance Contributions
HMRC must be voluntarily notified before a disclosure is sent in. They then allow 90 days to submit a full disclosure consisting of an explanation for the undisclosed tax, along with the tax amount to be paid over.
How is it beneficial?
The main benefit of the disclosure service is that it allows a certain amount of control over how much tax you will pay. The disclosure service provides the opportunity to inform HMRC of the penalty rate you deem to be appropriate and allows you to give an explanation about why there is undisclosed tax to be paid, and why you have not come forward before.
How many years should be included in the disclosure?
The circumstances and the behaviour surrounding the undisclosed tax are what decide how many years to include. There are similar guidelines for whether the disclosure is for a failure to notify HMRC of a liability, or an inaccuracy in a return. The general guide for the amount to be disclosed is as follows:
Failure to notify HMRC – max. 20 years
Deliberately misled – max. 20 years
Careless error in a return – max. 6 years
Took reasonable care – max. 4 years
How much tax will I pay?
The amount payable would be made up of the actual tax payable on the undisclosed income, the interest owing on this tax from the date it was due to be paid to the date it was paid and, finally, the penalties owing.
What penalties will I pay?
Whether the disclosure was prompted or unprompted by HMRC will affect the penalty rate, along with how long it has been since the tax was due. An unprompted disclosure submitted within 12 months of the tax being owing will see the lowest penalties.
As with the number of years to include in the disclosure, penalties are based on the behaviour surrounding the undisclosed tax. If the behaviour was non-deliberate and you have a reasonable excuse then you can see as little as a 0% penalty applied, providing HMRC accept your reasonable excuse. However, tax that has been deliberately concealed can see a penalty of up to 100%.
Can the penalty be reduced in any way?
The quality of the disclosure provided can help reduce the penalty rate depending on how much assistance you are willing to give HMRC. For telling them unprompted, agreeing to help with any further enquires and agreeing to give access to further records, if necessary, you could get up to 100% of the minimum penalty level applicable to your behaviour, as a reduction.
What happens after the disclosure is submitted?
When the disclosure is submitted you make a formal offer to HMRC of the tax you will pay, this becomes payable on that day. HMRC will then look at the offer made, along with all the other factors included in the disclosure and decide if they agree with the amount. If so, they will issue a confirmation letter that the case is closed.
If they do not agree, they will issue a letter enquiring into the amount and inform us as your agent what more information is needed.
When should I come forward?
If you are aware that you have not paid the right amount of tax to HMRC at any point, come forward now. The quicker you act on it; the more chance you have of lowering your penalties.
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