Managing HMRC scrutiny: When and how to utilise voluntary disclosures

Making a voluntary disclosure to HMRC can be a decisive step in resolving a tax issue whilst avoiding what can be time consuming litigation. We consider below some of the advantages of making a voluntary disclosure to HMRC and the different routes available to taxpayers.

This blog is based on an article written by Michelle Sloane and Daniel Williams that was published in HMRC Enquiries Investigations and Powers, on 5 May 2026.

Introduction

In recent years, HMRC has significantly expanded both the scope of its statutory powers and the sophistication of the risk analysis tools it deploys. Coupled with increased resources, this has markedly enhanced its ability to identify, investigate and challenge irregularities in taxpayers’ affairs. Unsurprisingly, HMRC has been proactive in deploying these capabilities, with large corporates and high net worth individuals, in particular, facing heightened and sustained scrutiny from HMRC.

Such scrutiny can give rise to protracted and costly disputes, consuming considerable time and resources, and placing significant strain on both individuals and businesses' senior management. While a range of options exist for resolving disputes once they arise, comparatively less attention is given to strategies aimed at preventing disputes arising in the first place. One such strategy is the making of a voluntary disclosure to HMRC.

A voluntary disclosure can be an effective step toward resolving a tax issue. Whether the issue arises from an innocent error, a misunderstanding of complex tax legislation, or historical omissions, coming forward voluntarily allows individuals and businesses to proactively take control of their tax affairs. 

Why voluntary disclosures matter: benefits and practical advantages

Making a voluntary disclosure of an error or omission identified in relation to a taxpayer’s affairs can offer several significant advantages. In particular, it can:

• mitigate potential liabilities, including penalties and interest;
• enable compliance to be regularised in a constructive and collaborative manner;
• protect reputation by demonstrating transparency and cooperation;
• manage criminal risk;
• allow the taxpayer to retain greater control over the process, timing and narrative; and
• facilitate the establishment of a clear and direct line of communication with HMRC.

These advantages can materially alter the dynamics of an HMRC interaction and should be weighed carefully against the risks of waiting for HMRC to make first contact.

Mitigating liability

A principal advantage of making a voluntary disclosure is the opportunity to control the narrative concerning the error and mitigate any penalties that HMRC may otherwise impose. 

HMRC operates a structured penalty regime that takes into account the behaviour that led to the inaccuracy (careless, deliberate, or deliberate and concealed), whether a disclosure was made (either prompted or unprompted), and the quality of the disclosure, including the level of assistance and information provided to HMRC are important factors which are taken into consideration by HMRC when considering the issue of potential penalties. 

Unprompted disclosures - those made before HMRC makes contact with the taxpayer regarding the relevant issue - attract substantially lower penalties than prompted disclosures. In some cases, no penalties will be imposed, particularly where the error was careless, not concealed and fully disclosed.

A voluntary disclosure also enables a taxpayer to present their position in a considered and informed manner, an opportunity that is often not available once an HMRC enquiry has commenced. In such circumstances, HMRC may already have formed a preliminary view that can be difficult to dislodge, leaving the taxpayer very much on the back foot. In contrast, a voluntary disclosure allows a taxpayer to set out the relevant facts and context in a structured and persuasive manner from the outset, ensuring that any mitigating or special circumstances are properly taken into account when HMRC assesses liability and determines any penalty.

In relation to interest, HMRC’s general position is that there is no scope to waive interest, nor any automatic entitlement to a reduction, as interest is charged by statute. Where interest has accrued, HMRC's view is that it is entitled to recover it in full, irrespective of the taxpayer’s circumstances. Any request for interest to be reduced or waived must therefore be referred to HMRC’s Interest Review Unit. In the authors' experience, such requests are rarely successful in the context of a voluntary disclosure.

That said, making a disclosure at an early stage and settling the resulting liability promptly will prevent further interest from accruing. This can be a significant benefit, particularly given the current late payment interest rate of 8%, which is applied to tax debts.

Regularising tax affairs and establishing a history of compliance

Once a taxpayer becomes aware of a tax irregularity, it can quickly become a significant source of stress and uncertainty. Making a voluntary disclosure can provide valuable peace of mind, helping to resolve matters at an early stage and reducing the risk of escalation into formal dispute, litigation, or even a criminal investigation, all processes which are often lengthy, costly and stressful.

Regularising one’s tax affairs in this way can also help to establish a positive compliance history with HMRC, potentially reducing the likelihood of future scrutiny.

Protecting reputation 

Reputational risk is an often underestimated, but potentially significant, consequence of a tax dispute. If matters escalate to litigation, decisions of the tax tribunals and courts are generally published and publicly available. This can expose sensitive details of a taxpayer’s affairs, including the nature of any irregularities, the amounts involved, and the conduct of the taxpayer, with potential implications for commercial relationships, investor confidence and public perception.

In contrast, where a matter is resolved by way of a voluntary disclosure, followed by a negotiated settlement, HMRC is bound by a strict duty of taxpayer confidentiality. This means that the details of the disclosure and any resulting settlement will generally not be made public. For both individuals and businesses, this can be important. 

Taking control of the process

A further advantage of making a voluntary disclosure is the degree of control it affords the taxpayer. The taxpayer can determine the timing of the disclosure, assemble the necessary information, and present their position in a clear, favourable and structured way.

This is particularly valuable in complex or document-heavy matters, where externally imposed deadlines can be challenging. Once HMRC has commenced a formal enquiry, taxpayers are often subject to tight statutory time limits. These constraints can limit the opportunity to fully investigate the facts and present a comprehensive response.

A voluntary disclosure also allows the taxpayer to influence the scope of the issues under consideration. By undertaking a thorough review of their affairs, all relevant matters can be identified and addressed in a coordinated and comprehensive manner. This reduces the risk of issues emerging piecemeal over time, which can complicate matters, prolong engagement with HMRC, and potentially undermine credibility.

Establishing a point of contact

One of the practical challenges in dealing with HMRC is establishing a clear point of contact. With multiple teams, channels and processes, taxpayers (particularly those with complex affairs) may find themselves passed between numerous teams or 'stakeholders' within HMRC before any meaningful engagement begins.

In contrast, most voluntary disclosure routes involve the appointment of a dedicated case officer to oversee the matter and act as the primary point of contact. This promotes efficient communication, ensures continuity, and helps to resolve queries more quickly and effectively.

Choose the correct route 

There are several routes by which a taxpayer can make a voluntary disclosure to HMRC. The principal routes are outlined below.  Careful consideration should be given to which route is most appropriate in light of the nature of the issues, the taxes involved, the client’s behaviour and any existing or anticipated HMRC activity.

Digital Disclosure Service

The Digital Disclosure Service (DDS) is one of the most commonly used routes for individuals and businesses seeking to disclose unpaid taxes. It is suitable for a wide range of taxes, including income tax, capital gains tax, and corporation tax. Importantly, the DDS cannot be used for VAT related errors. 

The process typically involves notifying HMRC of the taxpayer's intention to disclose. The taxpayer is then given a fixed period (usually 90 days) to calculate and submit the full disclosure, including tax, interest, and any applicable penalties. The 90 day window can be tight in complex cases, so it is important to ensure that a realistic work plan is in place before notification is provided to HMRC. The taxpayer must also pay what they owe when submitting their disclosure. 

The DDS is particularly useful for straightforward cases; it allows for a structured approach and provides a clear framework for calculating liabilities and making payment arrangements.

Worldwide Disclosure Facility

Disclosures involving income, assets or gains outside of the UK should generally be made by way of the Worldwide Disclosure Facility (WDF), although it should be noted that notification of an intention to make a disclosure under the WDF is still made by way of the DDS.

Once the taxpayer has provided notification to HMRC, they will be given a fixed period (usually 90 days) to calculate and submit the full disclosure, including tax, interest, and any applicable penalties. As with DDS, advisers should ensure that the 90 day period is sufficient in light of the availability of information (particularly from overseas institutions) and factor in potential delays. The taxpayer must also pay what they owe when submitting their disclosure. 

Contract Disclosure Facility

The Contractual Disclosure Facility (CDF) is a formal process used to resolve cases involving suspected serious tax fraud. It is governed by HMRC's Code of Practice 9 and provides taxpayers with an opportunity to disclose deliberate irregularities in their tax affairs. In essence, HMRC offers a contract: in exchange for a full and complete disclosure of all deliberate behaviour, it agrees not to pursue a criminal investigation. The CDF is an important process where there is a realistic risk of criminal investigation, but it is not appropriate for cases that do not involve deliberate behaviour.

In order to take advantage of the CDF route, the taxpayer must admit that tax fraud has occurred and submit an outline disclosure within a specified timeframe (usually 60 days). This is followed by a detailed report covering the nature, extent, and impact of the irregularities, including full calculations of the tax, interest, and potential penalties due. The process is thorough and normally involves detailed engagement with HMRC, making expert professional advice essential to ensure the disclosure is accurate and complete. 

A key benefit of the CDF process is the ability to resolve serious matters on a civil basis rather than the taxpayer facing a criminal investigation and ultimately prosecution. However, the protections it offers are conditional, and a failure to make a full and truthful disclosure can result in HMRC withdrawing the offer and potentially pursuing criminal action. 

VAT

Errors in a VAT return already submitted to HMRC can generally be corrected in one of two ways, depending on their size and nature. For smaller, non-deliberate errors, businesses are permitted to adjust the figures in a subsequent VAT return. This applies where the net value of the error falls within HMRC’s reporting thresholds (typically up to £10,000, or up to £50,000 if less than 1% of turnover). This is not a formal disclosure for the purposes of penalties. If the error was a result of careless conduct, the taxpayer would need to make a separate disclosure in writing to benefit from the maximum penalty reduction.

Where errors exceed the above thresholds, or where the mistake is considered deliberate, a formal disclosure must be made using form VAT652. This process requires a clear explanation of how the error arose, along with a full calculation of the VAT underpaid or overclaimed. Submitting a VAT652 ensures that HMRC formally recognises the correction and is particularly important where the taxpayer wishes to benefit from reduced penalties by making an unprompted disclosure.

HMRC generally allows errors to be corrected within a four-year time limit from the end of the prescribed accounting period in which the error occurred. 

Customs duty

For customs duties and import VAT, a taxpayer can submit a voluntary disclosure for errors identified after a customs declaration has been submitted, or for a failure to submit a customs declaration prior to the importation or exportation of goods.  The disclosure will trigger a C18 demand note being issued by HMRC to collect the underpayment. 

If an inaccurate customs declaration has been submitted using CHIEF, the taxpayer will need to use form C2001, and if it was submitted using the Customs Declaration Service, the taxpayer will need to use form C2001CDS.

Other disclosure routes 

HMRC offers a range of other disclosure routes for specific taxes or reliefs, including unpaid tax on cryptoassets and R&D relief claims. When considering whether to make a voluntary disclosure to HMRC, it is important to consider the most appropriate disclosure route having regard to the particular tax in issue and HMRC's published guidance. Advisers should also be alert to sector specific campaigns or 'nudge' letter programmes, which may affect whether a disclosure is treated as prompted or unprompted.

Conclusion

Voluntary disclosure is not merely a corrective measure, it is an important strategic decision that can materially influence the course and outcome of a tax issue. By coming forward proactively, taxpayers can mitigate potential penalties, manage financial exposure, and reduce the risk of more serious consequences, including criminal investigation. For professional tax advisers, it should be regarded as one tool within a wider HMRC risk management strategy, to be deployed after careful consideration of timing, scope and the client’s wider risk profile.

Given the range of disclosure routes, it is important to select the approach best suited to the taxpayer's particular circumstances and to engage in the process in a thorough and transparent manner. Equally, a voluntary disclosure will not always be the right answer. In some cases, it may be preferable to engage with HMRC through existing enquiry processes or to await further developments before committing to a particular route.

In practice, the effectiveness of voluntary disclosure also depends on HMRC’s operational capacity. In recent times, response times, particularly in relation to cases submitted via the DDS, have unfortunately been slow, which can prolong uncertainty for taxpayers and advisers. It is to be hoped that HMRC will ensure the relevant  teams are properly resourced so that voluntary disclosure continues to offer a timely and efficient route to regularising a taxpayer's affairs.