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Unprompted vs Prompted Voluntary Disclosure – which is the best approach to dispute resolution?

Honesty is always the best policy – and this is especially true when it comes to tax disputes and voluntary disclosures.

We know everyone can make mistakes with their taxes, and it can be incredibly stressful and worrying when this happens. So it’s important to remember that how you choose to disclose tax errors to HMRC can result in vastly different outcomes.

At NHD Tax Solutions, we have years of experience supporting clients with tax investigations – so we’re well-placed to guide you through the process.

Let’s take a look at the options available.

What is a voluntary disclosure?

Voluntary disclosure works as a means for taxpayers to put their records right. Think of it as an opportunity to bring your tax records and payments up to date, and disclose any errors in Income Tax, Corporation Tax, Capital Gains Tax or National Insurance contributions, for example.

If you think you’ve made a mistake with your taxes, you can use the contractual disclosure facility – an online service for both individuals and businesses.

You should use the digital disclosure service by:

  • Getting in touch with HMRC to let them know you want to make a disclosure
  • Provide as much information as possible about the total income, gains, duties and taxes you haven’t told them about previously
  • Calculating how much money is owed, including tax, interest and penalties
  • Letting HMRC consider your offer

If your offer is accepted, you can then pay what you owe.

Alternatively, if you’ve deliberately ignored errors in your tax records, you should use the contractual disclosure facility, which is also known as a COP9 (Code of Practice 9).

Prompted voluntary disclosure vs unprompted voluntary disclosure

A prompted voluntary disclosure occurs when HMRC approaches you and suggests that you may have additional tax to pay, based on information held on their system. 

While it can be unsettling to receive an invitation to check your tax position, along with a suggestion that you might need to make a disclosure, it serves as an opportunity to rectify past mistakes and ensure any tax discrepancies are resolved. Be quick to respond to the prompted voluntary disclosure letter and provide the information requested, checking first that HMRC is entitled to request what they’ve asked for. A failure to respond to a request for information by the stated deadline could leave you exposed to tax disputes and legal action.

Unprompted voluntary disclosure works a little differently. With this type of disclosure, there isn’t an approach from HMRC. Instead, you take the initiative to notify them of errors, which demonstrates transparency and a willingness to stay on top of your tax records. This means HMRC will view your discrepancies more favourably, particularly when considering penalties.

Which approach should you take?

When it comes to making sure your taxes are correct, you mustn’t bury your head in the sand. Admitting past tax mistakes can seem like a daunting prospect. But if you don’t declare them, HMRC will likely catch up with you further down the line.

When HMRC receives an unprompted voluntary disclosure, they are presented with the background and facts of your situation, as well as a computation of tax, interest and penalties. And this puts you at a major advantage – especially if you have a tax adviser.

A tax adviser will be able to create the best starting point for your voluntary disclosure. They will take advantage of all possible reliefs and allowances available to you. This isn’t something that HMRC generally do when they decide to lead information requests and calculate liabilities. So it makes sense to notify HMRC of discrepancies as soon as you become aware of them.

If you’re not sure how to go about things, we’d recommend seeking some advice from a trusted expert. At NHD Tax Solutions, we take the time to understand your story. We pull together the best recommendations for you based on your circumstances.

Let us know if you’d like a confidential chat.

Next steps

If you’ve made a mistake with your tax returns or you know things aren’t as they should be, you’ll feel much better after having a confidential discussion with a specialist. We can help you correct innocent errors or disclosures of serious tax fraud. Our proposed strategy will be tailored to the specific facts of your case. 

In more serious scenarios, you shouldn’t be spending your energy worrying about losing your home or going to prison. It doesn’t need to get to that stage, no matter how big the issue. The right advice can make the difference between a civil settlement and a custodial sentence. The process becomes a whole lot smoother when you have the right tax advisor on board.

Our non-judgemental advisors will approach the appropriate point of contact within HMRC based on your circumstances. We support you with the calculation process to ensure your case is dealt with sensibly and proportionately. This means less stress and more peace of mind.

If you’ve spotted a discrepancy in your tax affairs or you’ve already received that dreaded HMRC prompt, get in touch. We’re always here to help.

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