What Stops People Admitting A Tax Mistake (Psychology)

Admitting a Tax Mistake? Check this...

Nobody's perfect even when it comes to your taxes. Mistakes happen to everyone, from forgetting about a bit of savings interest to missing an entire source of income.

How you handle these errors can make a massive difference to any penalties or interest you might face. Coming clean proactively shows HMRC you're acting in good faith, which often leads to more lenient treatment.

The UK's first personal tax app helps identify and fix mistakes before HMRC finds them. Or if you're just here to get to grips with it all, let's break it down!

What is a tax disclosure?

A tax disclosure is simply you telling HMRC about mistakes on past tax returns before they find them themselves. This covers everything from innocent errors (like mistyping a figure) to more serious issues like completely forgetting to mention rental income.

It applies to all types of taxes income tax, capital gains, VAT, corporation tax and others. The key thing to remember is that voluntarily owning up to mistakes is worlds apart from tax evasion.

Tax evasion means deliberately hiding things from HMRC. Disclosure, on the other hand, shows you're trying to put things right.

When should you admit a tax mistake?

The golden rule is: as soon as you spot it. The quicker you act, the better. HMRC is much more understanding when you come forward before they start looking into your affairs.

You should definitely make a disclosure if you've spotted unreported income or claimed expenses you weren't entitled to. Even if an accountant gave you incorrect advice, you're still responsible for your tax affairs.

I once forgot to include a small freelance payment on my tax return. When I discovered it months later, I immediately disclosed it the process was surprisingly straightforward.

Even if the mistake happened years ago, it's better to disclose it now than wait for HMRC to discover it during an investigation. The penalties for HMRC-discovered errors are significantly higher.

How to make your disclosure

For most tax issues, you can use HMRC's Digital Disclosure Service (DDS) online. This user-friendly system guides you through the process step by step.

If your mistake involves rental income, the Let Property Campaign offers a specific route with potentially more favourable terms. It's designed specifically for landlords who need to regularise their tax position.

Before starting, gather all relevant documents and calculate how much tax you think you owe, including interest. Being thorough at this stage will save you headaches later.

For complex cases or large amounts, getting professional help is usually worth the cost. Tax professionals can ensure you're disclosing correctly and claiming all available reliefs.

Will you face penalties?

Yes, possibly but they'll likely be much lower if you come forward voluntarily. Penalties vary based on why the mistake happened and how cooperative you are.

Genuine errors get treated more leniently than careless or deliberate mistakes. The good news is that penalties can be reduced by up to 100% for unprompted disclosures.

Timing matters too older mistakes might fall outside certain time limits, affecting what penalties can be charged. HMRC generally can't go back more than four years for innocent errors.

For careless mistakes, they can look back six years. For deliberate errors, this extends to 20 years another reason to disclose promptly.

What happens after you disclose?

HMRC will review everything you've submitted and may ask for more information or documents. Be prepared to provide additional details if requested.

Most cases resolve without any criminal investigation when disclosed voluntarily and honestly. HMRC appreciates taxpayers who take responsibility for their mistakes.

You'll usually need to pay what you owe, but HMRC can often arrange payment plans if you can't pay the full amount immediately. Don't hesitate to discuss payment options if you're facing financial difficulties.

Be aware that your disclosure might prompt HMRC to look at other tax years. This is why it's important to ensure all your affairs are in order before making a disclosure.

Common disclosure mistakes to avoid

Don't be tempted to only tell part of the story incomplete disclosures can lead to more serious consequences if discovered. Always be comprehensive and transparent.

Never underestimate how much you owe hoping for a smaller bill. HMRC has sophisticated ways of checking your figures and can access various financial records.

Missing documentation is another common issue. Gather everything that supports your disclosure before submitting, including bank statements, invoices and receipts.

If you agree to a payment plan, stick to it religiously. Missing payment deadlines can undo the goodwill you've built and potentially trigger enforcement action.

Final Thoughts

Tax mistakes happen to everyone, but taking responsibility for them shows integrity and can save you money in the long run. The sooner you address the error, the better the outcome usually is.

Acting quickly and being completely honest with HMRC is always the best approach. They have extensive powers to investigate and punish non-compliance, but they're also reasonable with those who come forward.

With the right approach, you can resolve past tax errors and move forward with confidence. Remember that seeking professional advice can be invaluable for complex situations.