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HMRC Voluntary Disclosure: What You Need to Know Before You Come Clean

Everyone makes mistakes — even when it comes to tax. Whether you’re a business owner who misreported income, an individual who failed to register for a tax, or simply overlooked a dividend payment, HMRC gives taxpayers a formal opportunity to put things right through its voluntary disclosure process.

By coming forward before HMRC contacts you, you can often minimise penalties, avoid lengthy enquiries, and correct the record in a controlled, professional way.

This guide explains how the voluntary disclosure process works, who should use it, and what to expect — including the different treatment of VAT and the growing pressure around undeclared dividends.

What Is the Voluntary Disclosure Process?

HMRC’s voluntary disclosure process is designed to help individuals and businesses correct past tax errors or disclose previously undeclared income.

It applies to:

  • Income Tax
  • National Insurance contributions
  • Corporation Tax
  • Capital Gains Tax

You can disclose a range of issues, including:

  • Omitting income from self-employment or rental property
  • Incorrectly claiming tax reliefs or deductions
  • Failing to register for tax at the right time
  • Misreporting or under-declaring company profits

Importantly, VAT errors follow a different process, which is outlined separately below.

Prompted vs. Unprompted Disclosure: Why Timing Matters

The timing of your disclosure has a direct impact on the level of penalties you may face.

  • An unprompted disclosure means you contacted HMRC before they reached out to you about the issue. This usually results in lower penalties and a more favourable resolution.
  • A prompted disclosure is when HMRC has already started an enquiry, issued a notice, or made contact about a suspected error. In these cases, penalties are often higher.

According to HMRC guidance, the measure of whether a disclosure is unprompted is objective. In other words, you cannot delay action if you suspect HMRC may soon uncover the issue — acting early is key.

Step-by-Step: How the Disclosure Process Works

1. Notification (via Digital Disclosure Service)

The process begins by notifying HMRC of your intention to make a disclosure. This is done online using the Digital Disclosure Service (DDS).

At this stage:

  • You do not need to provide any figures or tax details
  • HMRC will respond with a Disclosure Reference Number (DRN) and a Payment Reference Number (PRN)
  • This starts your 90-day clock to submit the full disclosure

2. Submission of the Disclosure (within 90 Days)

You must now submit:

  • A breakdown of the additional tax liabilities by year
  • A detailed calculation of the total owed
  • A declaration of the behaviour that led to the error (e.g., careless, deliberate)
  • Payment in full, or arrangements if you cannot pay immediately

Important:

  • Do not include income that has already been declared — only the omitted amounts
  • Each person or entity must submit a separate disclosure. For example:
    • A husband and wife with shared property income must submit separate forms
    • A company and its director require two separate disclosures

3. Payment

  • Payment must be made at the same time as the disclosure
  • If you cannot pay immediately, you must arrange a Time to Pay agreement with HMRC by the 90-day deadline

4. HMRC Response

Once your disclosure is received:

  • HMRC will usually issue an acceptance letter within a few weeks
  • If there are issues or the disclosure is rejected, HMRC will send a detailed letter explaining the next steps
  • In some cases, further investigation may follow

How Many Years Should You Disclose?

The number of years you must include in your disclosure depends on the reason behind the error.

Reason for Underpayment Disclosure Period
Took reasonable care 4 years
Careless behaviour 6 years
Deliberate behaviour 20 years

Where HMRC has issued a notice to file a return and it remains outstanding, you must complete and file the return separately — those years should not be included in the voluntary disclosure.

Special Rules for VAT Errors

VAT is treated separately under HMRC guidance.

  • If the net VAT error is under £2,000, you may adjust it in your next VAT return.
  • If the error exceeds £2,000, you must make a separate disclosure using VAT form VAT652 and pay the amount due.

Be cautious: VAT disclosures often trigger more detailed scrutiny, especially where input tax or cross-border transactions are involved.

Dividends and the HMRC ‘Nudge Letters’

One area that’s recently come under close scrutiny is the non-disclosure of dividends.

HMRC has access to information from companies, banks, and investment platforms. If you’ve received dividend income but haven’t declared it, HMRC may already know — and they’re increasingly using so-called “nudge campaigns” to prompt taxpayers to review their returns.

In these cases, HMRC sends a standardised letter stating they believe the taxpayer may have omitted dividend income, and directs them to use the Digital Disclosure Service if correction is needed.

If you receive such a letter, it’s best to act promptly, even if you believe your returns are correct — the letter may be based on inaccurate data, but ignoring it can escalate matters quickly.

What If You Can’t Pay the Tax Due?

HMRC understands that some taxpayers won’t be able to pay the full liability immediately.

In such cases:

  • Do not delay your disclosure
  • Submit your full calculation, and request a Time to Pay arrangement
  • HMRC will work with you to establish a manageable payment plan

Ignoring the issue or waiting until you can afford to pay in full may result in higher penalties if HMRC discovers the error independently.

Why It’s Better to Disclose Voluntarily

The voluntary disclosure process is designed to:

  • Encourage transparency and honesty
  • Reduce the cost (in time, penalties, and stress) of HMRC enquiries
  • Help taxpayers avoid criminal sanctions or further investigations

In many cases, making a timely, unprompted disclosure can reduce penalties to as little as 10% of the potential lost revenue — or even zero, depending on the circumstances.

Conclusion

Tax errors and omissions are more common than most people think — but ignoring them or hoping HMRC doesn’t notice can lead to serious consequences.

The voluntary disclosure process offers a structured, efficient route to rectify past issues and reduce future risk.

Whether it’s a forgotten dividend, undeclared rental income, or a mistaken claim for relief, the key is to act before HMRC contacts you. Once they do, the opportunity to make an unprompted disclosure — and benefit from reduced penalties — may be lost.

Need Help Making a Disclosure?

At Merranti Accounting, we guide individuals, directors, landlords and business owners through the disclosure process. Whether it’s a one-off issue or part of wider tax risk management, we can help you:

  • Assess whether a disclosure is required
  • Calculate the liabilities owed
  • Draft and submit the correct forms
  • Deal with HMRC on your behalf
  • Negotiate Time to Pay if needed

Contact our tax team today for a confidential consultation.

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