HMRC have offered disclosure opportunities for many years to those with undeclared income to come forward and reach a settlement.

For HMRC, such opportunities are attractive and shift the onus to the taxpayer to review the finer details. From a taxpayer’s point of view, disclosure opportunities are preferable to wait until HMRC opens an enquiry or investigation and offer the chance to mitigate the penalties which would otherwise be imposed.

All disclosures are now administered through a HMRC portal, the Digital Disclosure Service. This offers a disclosure route for both individuals and companies who wish to make a disclosure but who are not covered by a specific HMRC campaign. The three steps to making a disclosure include:

  1. Notifying HMRC of your intentions to make a disclosure
  2. Preparing and submitting the disclosure within 90 days
  3. Making a formal offer to HMRC together with the payment of tax, interest, and any penalties due

Currently, HMRC are quite flexible with the 90 days submission period and have been receptive to extending this time period where there are genuine reasons for delay, such as the impact of  Covid or ill health.

This applies where a disclosure is required but there has been no deliberate or fraudulent behavior on the part of the taxpayer. If this is not the case, then a disclosure under a Code of Practice 9 (also referred to as COP9) should be considered as a means to provide an immunity to prosecution for the tax offences. In this case, it is extremely advisable to take advice if this route is being considered.

HMRC’s information gathering has become more sophisticated and precis over the years. Their ‘Connect’ system enables them to collate information from various sources, both UK and overseas, to identify those it determines to have a risk of undeclared income or gains.

Over the last year, HMRC have issued “nudge” letters to the following groups of individuals / businesses who have:

  • Undeclared capital gains on the sale of land and property in the 18/19 tax year
  • Undeclared income or gains from overseas assets
  • Incorrect claims under the Company Job Retention Scheme or SEISS schemes
  • Made Tax Digital for VAT
  • Use profit diversion compliance facility (transfer pricing, diverted profits tax, etc.)

Where a disclosure is made prior to any kind of intervention from HMRC, it is possible for the tax liability to be settled with just the addition of late interest, and a reduced penalty to 0% or suspended for a defined period on the condition of full compliance going forward.

In the case of overseas income or gains giving rise to liabilities, a penalty of up to 200% could be applied by HMRC for the tax years 2016/17 and before. However, a voluntary disclosure could help mitigate this amount substantially.

In recent times, the sudden rise in the value of Cryptocurrencies has meant many individuals have created tax liabilities and not realized it, especially where they have sold Crypto assets and reinvested the proceeds into other crypto assets. Early disclosure of these, especially at a time when HMRC are catching up with the constantly changing world of Crypto, will mean the most efficient way to correct matters as well as advice on future compliance is provided.

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