Voluntary Disclosure to HMRC: Statutory Framework
"Voluntary disclosure" is not a defined statutory term. The legislation deals with HMRC voluntary disclosure through the penalty regimes for inaccuracies in returns and for failure to notify chargeability. Within those regimes, disclosure determines the level of penalty. The assessment time limits determine how many years HMRC may reopen.
1. HMRC voluntary disclosure under the penalty legislation
Paragraph 9 of Schedule 24 to the Finance Act 2007 provides that a person discloses an inaccuracy by:
telling HMRC about it;
giving HMRC reasonable help in quantifying it; and
allowing HMRC access to records for the purpose of ensuring that it is fully corrected.
Paragraph 12 of Schedule 41 to the Finance Act 2008 makes corresponding provision for a failure to notify chargeability.
2. Unprompted and prompted disclosure
A disclosure is unprompted if it is made at a time when the person has no reason to believe that HMRC have discovered, or are about to discover, the inaccuracy or failure. Any other disclosure is prompted.
The distinction determines the minimum penalty to which a penalty may be reduced.
3. Penalties for inaccuracies: Schedule 24 FA 2007
Paragraph 3 classifies an inaccuracy as careless, deliberate but not concealed, or deliberate and concealed. Paragraph 4 sets the maximum penalty as a percentage of the potential lost revenue. Paragraph 10 sets the minimum to which disclosure may reduce it:
Behaviour | Maximum | Minimum, unprompted | Minimum, prompted |
Careless | 30% | 0% | 15% |
Deliberate, not concealed | 70% | 20% | 35% |
Deliberate and concealed | 100% | 30% | 50% |
These percentages apply to category 1 matters. Paragraph 4A provides higher percentages where the inaccuracy involves an offshore matter or offshore transfer.
Paragraph 9(3) provides that, in determining the reduction, HMRC must have regard to the quality of the disclosure, including its timing, nature and extent. Paragraph 14 permits suspension of a penalty for a careless inaccuracy where conditions are attached.
4. Penalties for failure to notify: Schedule 41 FA 2008
Paragraph 13 sets the minimum penalties for failure to notify. For a deliberate failure and a deliberate and concealed failure, the minimums are the same as those in the Schedule 24 table above.
For a careless failure, the minimum depends on when HMRC become aware of it:
less than 12 months after the tax first becomes unpaid: 0% where the disclosure is unprompted and 10% where it is prompted;
12 months or more after that date: 10% and 20% respectively.
5. Time limits for assessment
How many years may be reopened is governed by the Taxes Management Act 1970:
Provision | Circumstances | Time limit |
Section 34 | Ordinary time limit | 4 years after the end of the year of assessment |
Section 36(1) | Loss of tax brought about carelessly | 6 years |
Section 36A | Certain cases involving offshore matters or offshore transfers | 12 years |
Section 36(1A) | Loss of tax brought about deliberately, failure to notify under section 7, or certain avoidance arrangements | 20 years |
For companies, paragraph 46 of Schedule 18 to the Finance Act 1998 makes corresponding provision.
6. Interest
Interest on tax paid late is charged under section 86 TMA 1970 for Self Assessment, and under section 101 of the Finance Act 2009 where that section has been brought into force. Interest is not a penalty and is not reduced by disclosure.
7. Publication of deliberate defaulters
Section 94 of the Finance Act 2009 permits HMRC to publish information about persons who incur penalties for deliberate inaccuracies or deliberate failures where the potential lost revenue exceeds £25,000. Publication does not apply where the penalty has been reduced to the full extent permitted for disclosure.
Key points
Disclosure has three elements: telling HMRC, giving reasonable help in quantifying the matter, and allowing access to records.
Whether a disclosure is unprompted or prompted determines the minimum penalty.
The penalty level depends on behaviour: careless, deliberate, or deliberate and concealed.
The assessment period ranges from 4 to 20 years, according to behaviour and the nature of the matter.
Legislation referenced
Taxes Management Act 1970, ss 7, 34, 36, 36A, 86
Finance Act 1998, Schedule 18, para 46
Finance Act 2007, Schedule 24, paras 3, 4, 4A, 9, 10, 14
Finance Act 2008, Schedule 41, paras 12, 13
Finance Act 2009, ss 94, 101
