New taxpayer duty to correct errors in tax returns

On 13 July 2026, HMRC published draft legislation for inclusion in the Finance Bill 2027 which, if enacted, will introduce a new duty on taxpayers to correct errors identified in their tax returns.

At first glance, a duty to correct mistakes identified does not seem unreasonable, but its proposed implementation and connection to the penalty regime is a significant development.

The draft legislation comprises two main elements:

1. Duty to correct inaccuracies

Taxpayers who become aware of an inaccuracy in a document they have provided to HMRC (such as a tax return) will be obligated to take reasonable steps to correct that inaccuracy or, where the taxpayer cannot correct it directly, to notify HMRC.

Failure to comply with this obligation will result in the inaccuracy being treated as deliberate for penalty and assessment time limit purposes.

Under the existing framework, an inaccuracy is generally only treated as deliberate where the taxpayer knowingly provides inaccurate information to HMRC with the intention to mislead HMRC. This is a high threshold, and the consequences are commensurate with that high threshold. A deliberate inaccuracy allows HMRC to issue assessments for inaccuracies going back 20 years, as opposed to 6 years for a careless inaccuracy, or 4 years for an inaccuracy made despite taking reasonable care. A taxpayer found to have made a deliberate inaccuracy is also potentially exposed to much higher tax-geared penalties of up to 100% of the potential lost revenue (and potentially more in certain offshore cases).

A fundamental issue with the proposed legislation is that it does not distinguish between a genuine error and a bona fide disagreement over the correct interpretation of the law. This raises difficult questions about when a taxpayer can properly be said to have “become aware” of an inaccuracy where the correct legal position is genuinely uncertain. If HMRC were to argue that awareness arose before the issue was finally resolved, taxpayers could face allegations of deliberate behaviour despite having advanced a reasonable legal interpretation of the correct tax position.

2. New power to issue a Customer Correction Notice

HMRC is to gain a new power which will enable it to issue a Customer Correction Notice where it has reason to suspect that a document contains an inaccuracy. The taxpayer will be required to take reasonable steps to correct that specified inaccuracy or explain why no correction is needed.

If no correction is made or the inaccuracy remains following the correction, the inaccuracy will be presumed to be careless, unless the inaccuracy is deliberate, or the taxpayer can establish that they took reasonable care in the first instance.

Key takeaways and tips

Taxpayers and their advisors should:

• Review their internal processes for identifying potential inaccuracies to ensure they are sufficiently robust.
• Ensure that any potential inaccuracies identified during internal reviews, audits or due diligence exercises, are escalated promptly so that decisions on correction can be documented and appropriate action taken.
• Ensure that relevant stakeholders are aware of the proposed changes and the heightened compliance risk that will attach to tax errors.
• Be aware that if reasonable steps are not taken to correct a known error, the inaccuracy will be treated by HMRC as deliberate and this will result in penalties being calculated at the higher rates applicable to deliberate behaviour.