Taxes are a topic that people tend to avoid due to how tedious they are and often because people struggle to calculate them accurately. However, if you find that you have underpaid on your taxes, thinking that HMRC won’t notice is not a good plan. Instead it is recommended that you complete a voluntary disclosure, to be one step ahead of the game, and inform HMRC that you want to pay for the error. ARB Accountants are here to explain exactly what a voluntary disclosure is, including the benefits of submitting one.
So, how do you make a voluntary disclosure to HMRC? To make a voluntary disclosure you must use the Digital Disclosure Service provided by HMRC whereby you detail each tax calculation to demonstrate how you have underpaid. HMRC will then check this information, send you a unique disclosure reference number and request you make the payment within 90 days.
Keep reading to find out more about HMRC voluntary disclosures including how long a voluntary disclosure will take and how to make one.
How to Submit a Voluntary Disclosure to HMRC?
To inform HMRC that you believe you have not paid the correct amount of tax previously, you can make a voluntary disclosure by using the Digital Disclosure Service provided by HMRC. Within the disclosure you will be required to detail the correct amount of income tax, capital gains tax, national insurance or corporation tax that you know has not been correctly declared to HMRC.
Once you have informed HMRC about any outstanding taxes that you believe you have not paid, HMRC will provide you with a unique disclosure reference number. This is an important number because it is what you will need to use when disclosing your payment to HMRC. One point to remember is that you have a maximum of 90 days to make your outstanding payment to HMRC, once they have acknowledged your notification. After you have paid your outstanding taxes to HMRC, and they are happy with your payments and calculations, they will send you confirmation of payment within two weeks of you doing so. However, if they find discrepancies within your calculations or payments, it is important to note that HMRC can charge you additional penalties. Therefore, we would recommend ensuring that your tax calculations are accurate and are double checked by yourself or an experienced accountant.
A voluntary disclosure is the elective declaration of any calculated underpayments of taxes that you recognise from your own taxes. HMRC encourages people to make voluntary disclosures to avoid receiving large fines for underpayments of taxes. By completing a voluntary disclosure for HMRC, you demonstrate that you are trying to be honest and accurate with your tax payments, which is a good representation to make to HMRC.
What are the Benefits of Making a Voluntary Disclosure?
Whilst you may be concerned that voluntary disclosures take a lot of time and concentration, ARB accountants believe there are some benefits to completing one. Below we have detailed these benefits to help you understand.
|Elimination of Further Penalties||By taking the time to analyse your taxes and calculate whether there were any underpayments, you reduce the risk of HMRC identifying these underpayments. By identifying them yourself, you can save yourself a significant amount of money in penalties.|
|Better Understanding of Taxes||By actively calculating your taxes for a voluntary disclosure, you are expanding your knowledge on how taxes are calculated. This is significant because it can help you to understand what to expect from your taxes in later years, and recognise when errors have been made. Again, this helps you to avoid any unnecessary and expensive penalties that you could have prevented.|
|Personal/ Company Reputation||A voluntary disclosure is also beneficial because it shows that you demonstrate a certain level of honesty. By voluntarily coming forward and showing that there are errors in your taxes, you are creating a reputation with HMRC that you are an honest entity. This means that HMRC will not view you as a potential threat and will have records of you being honest about your taxes.|
|Potential Tax Errors||When completing a voluntary disclosure, during the calculations of your taxes you may also identify taxes of which you have overpaid. By completing in depth calculations you may begin to recognise errors in your taxes which could result in you receiving a refund from HMRC. Whilst this is not the sole intention of completing the voluntary disclosure, it is possible to identify these errors during your calculations.|
How Long is Voluntary Disclosure?
Voluntary Disclosures are not a quick process, especially because you have to complete the calculations, submit the disclosure form and then wait for HMRC to notify that they have accepted your disclosure. The calculations alone, can take a significant amount of time, especially if you are not an expert in taxes. What’s more, there is no peak time for voluntary disclosures, therefore the backlog at HMRC is always going to be quite long which means that you could be waiting a while before you can submit your payment.
It is recommended to submit your voluntary disclosure to HMRC as soon as you have become aware that you have underpaid on any form of tax. This is because the sooner you do it, the sooner you can pay it off and reduce the chances of you receiving a large penalty. In some cases penalties can be up to 200% of the original amount that was underpaid, therefore submitting your disclosure accurately and quickly is helpful.
Tax Investigation Services at ARB Accountants
At ARB Accountants we understand how taxes can be a confusing and tedious concept, especially when you are trying to calculate them yourself. What’s more, if you are new to the voluntary declaration process, it may be a good idea to seek some professional guidance when you are going through each step, to ensure that you are completing it correctly.
Our Tax Investigation Service is ideal for anyone who is concerned that they have underpaid on their taxes and need some advice on how to move forward from this. If you require some tax advice, don’t hesitate to get in touch today.