Clients who have undeclared tax that they owe to HMRC and who do not qualify for a current campaign, such as the Let Property Campaign, can make use of HMRC’s Digital Disclosure Service (DDS). It is always better to tell HMRC about undeclared income and gain than to wait to be found out.
The DDS can be used by individuals and companies to tell HMRC about income tax, capital gains tax, National Insurance or corporation tax that is due. To make a disclosure, a client must:
- notify HMRC that they want to make a disclosure by completing the DDS form;
- disclose details of undeclared income and gains within 90 days of notifying HMRC that they want to make a disclosure;
- make a formal offer; and
- pay what they owe.
HMRC have produced an online calculator which can be used to work out the interest and penalties that will be payable in addition to the undeclared tax. The maximum penalty that may be charged in 100% of the tax liability of the income and gain arose in the UK and 200% of the tax liability for offshore income and gains. The penalty may be reduced to take account of circumstances. Penalties are not charged if the client took reasonable care to ensure that their tax affairs were correct. However, if HMRC do not think that the right penalty has been included within the disclosure, they may reject it. Interest is not charged on penalties unless they are paid late.
When making the disclosure, it is important that the client completes the declaration. As part of the disclosure, the clients makes an offer to pay their outstanding liabilities. The acceptance of the offer by HMRC creates a legally binding contract between the client and HMRC. Payment must be made, using the payment reference number (PRN) given to the client when they made their disclosure, no later than the 90-day deadline given on the notification acknowledgement letter.
Written by the Tax Advice Network