HMRC consultation could force taxpayers to correct errors up to 20 years old
A consultation on modernising error correction would make taxpayers responsible for reporting historic mistakes, with advisors warning it could discourage voluntary compliance.
HM Revenue and Customs has launched a consultation that would require taxpayers to correct any inaccuracies they discover in past returns or documents, potentially reaching back two decades. The proposal, titled Modernising the Correction of Errors, links the new obligation to existing assessment time limits: four years where reasonable care was taken, six years for careless behaviour and up to 20 years for deliberate errors.
Under the draft rules, a taxpayer who spots a mistake while reviewing old records would have a duty to report it. If they decide no correction is needed, for instance, believing the original error was made with reasonable care and the assessment window has closed, HMRC could later disagree and treat the failure to correct as deliberate behaviour, extending the time limit and increasing penalties.
How the mechanism would work
The consultation does not specify how a taxpayer would prove they were unaware of an error within the reporting window, nor how they could demonstrate that a decision not to report was reasonable. Advisors point out that records may no longer exist after 20 years, leaving individuals unable to explain historic entries.
If by reviewing your old tax affairs and finding a historic error, you risk a dispute with HMRC and a penalty for not reporting it, why do it at all?
Fiona Fernie, a partner at Blick Rothenberg, argues the objective of improving compliance is sensible but the approach risks the opposite effect. Without a finite correction window and clearer safeguards, the measure could undermine the voluntary disclosure culture HMRC relies on.
Next steps
The consultation is open for responses, after which HMRC will publish a summary of feedback and decide whether to proceed with legislation. Tax bodies are expected to press for a statutory time limit on the correction obligation and a clearer definition of when the duty to correct is triggered. Until then, taxpayers and advisors are left weighing the risks of reviewing historic returns against the potential consequences of doing nothing.
