HMRC Disclosures- Prompted vs Unprompted And Why Does It Matter

When it comes to completing Tax Returns, mistakes can and do happen. According to HMRC, this is especially the case with certain types of income, for example overseas or self-employed sources. Not just mistakes either, but a simple lack of understanding of the tax law and how this applies to bespoke circumstances. Probably also goes without saying that there will always be some who deliberately choose to not to report income sources.

HMRC now have access to an enormous amount of financial data, essentially presented to them by financial institutions who have no choice but to report their clients’ assets and income. It is therefore more important than ever before to ensure that your tax affairs are correct and up to date .

HMRC contact you first – Prompted Disclosures

A prompted disclosure occurs when HMRC initiates contact with you, necessitating that you make a disclosure. In such cases, HMRC identifies an unpaid liability, and requests specific information from you. This form of disclosure is often a result of HMRC’s investigation or examination of your financial records.  It is worth noting a “nudge” letter from HMRC is not necessarily a prompt.

While prompted disclosures can be unsettling, they provide an opportunity to rectify any discrepancies and address tax issues directly.  Failing to do so can lead to potential penalties or legal consequences. Therefore, prompt cooperation with HMRC is essential to resolve the matter as smoothly as possible.

Volunteer to report to HMRC first – Unprompted Disclosures

An unprompted disclosure involves taking the initiative to approach HMRC and voluntarily declare any unpaid taxes or discrepancies in your financial affairs. This demonstrates your commitment to complying with tax regulations and rectifying any unintentional oversights.

Making an unprompted disclosure significantly reduces the likelihood of facing criminal charges or severe penalties. By voluntarily coming forward and acknowledging any errors, you are demonstrating a willingness to correct mistakes. This aligns with HMRC’s “requirement to correct” legislation for overseas investments or assets. HMRC generally views such disclosures more favourably, acknowledging the proactive behaviour of taxpayers who take corrective actions without external prompting.

Choosing to make an unprompted disclosure not only reflects positively on your intentions but also contributes to building a cooperative relationship with HMRC. It showcases your dedication to maintaining the integrity of the tax system and can mitigate potential legal repercussions.

Expert Guidance for Disclosures

Navigating the complex landscape of HMRC disclosures can be quite daunting. Most are not familiar with the processes involved. In such situations, seeking expert advice is a prudent step to ensure that you handle disclosures correctly and efficiently.

HMRC Information Powers

HMRC has the legal authority to obtain information and documents from individuals and third parties. Again, it is best to co-operate with any such request, unless it can be challenged as unnecessary or overly burdensome.  In such instances, professional help in dealing with such a request is certainly the best approach; it is rare that an enquiry can be properly navigated without professional help.

HMRC Disclosures Facility

HMRC provide an on-line facility by which anyone can make a disclosure.  Usually, on receipt of a disclosure, HMRC will carry out a review of the disclosure; this may be “light touch” if the discrepancies are not significant; it goes without saying, the larger the issue the more in depth the review.

In Conclusion

Making the right choice between prompted and unprompted disclosures to HMRC can have major consequences for your financial and legal affairs. Prompted disclosures address HMRC-initiated inquiries, while unprompted disclosures demonstrate proactive transparency. Opting for the latter can significantly diminish the likelihood of criminal charges or severe penalties.

If you have any queries about disclosures to HMRC please do not hesitate to get in contact with Seamus McElvanna, Rosemary Loughran or your usual AAB contact.