Voluntary Tax Disclosures & How They Save You Money
If you have discovered an error in your past tax returns or realised you have undeclared income, you face a critical choice: wait for HMRC to find you, or step forward first.
In this article, we explore why making a voluntary disclosure is the most cost-effective way to put your tax affairs in order.
What is an Unprompted Disclosure?
An unprompted disclosure is when you notify HMRC of a tax error before they have started a formal enquiry or sent you a nudge letter.
A prompted disclosure happens after HMRC has contacted you regarding a specific concern.
With HMRC’s Connect AI system now fully integrated with bank accounts, property records, and digital platforms, the window for unprompted action is smaller than in previous years.
The Financial Impact
The primary benefit of coming forward voluntarily is that the potential penalty you may face could be reduced. HMRC rewards transparency by lowering the minimum penalty thresholds for those who tell them about errors first.
The penalty rates for 2026 are:
| Behaviour Category | Unprompted Penalty | Prompted Penalty |
| Careless | 0% – 30% | 15% – 30% |
| Deliberate | 20% – 70% | 35% – 70% |
| Deliberate & Concealed | 30% – 100% | 50% – 100% |
NB: Late payment interest (currently 7.75% as of March 2026) applies in all cases and is calculated daily from the original due date.
Case Study
Two taxpayers, Jane and David, both failed to declare £10,000 in rental income due to a “careless oversight”. Both are fully cooperative when the error is reported.
Jane (Unprompted): Jane notices the error and uses the Digital Disclosure Service to inform HMRC. Because she came forward voluntarily and helped HMRC calculate the debt, they reduce her penalty to 0%. Her total penalty is £0.
David (Prompted): David receives a letter from HMRC stating they have information about his rental income. He immediately confesses and cooperates. However, because HMRC contacted him first, the law dictates a minimum penalty of 15%. His total penalty is £1,500.
By taking the initiative, Jane saved £1,500 compared to David, despite having the exact same tax error.
NB: in this example we have not factored in the interest charge on the late tax payment.
Key Advantages of Making a Voluntary Disclosure
The main advantages of making a Voluntary Disclosure can be summarised as follows:
- Reduced Penalties: For careless errors, unprompted penalties can be as low as 0%–30%, compared to 15%–30% if HMRC finds the error first (prompted).
- Penalty Suspension: An unprompted disclosure often allows for a penalty suspension in cases of careless errors. HMRC may agree to cancel your penalty entirely if you meet specific conditions (such as using a professional accountant or new software) for a set period. This is rarely offered in prompted cases.
- Avoiding Naming & Shaming: HMRC can publish the names and addresses of deliberate tax defaulters on a public list. However, if you make a full, unprompted disclosure, you are generally protected from being included on this list, preserving your personal and professional reputation.
- In serious cases involving deliberate fraud, the Contractual Disclosure Facility (CDF) allows you to admit to the fraud in exchange for a legal guarantee that HMRC will not pursue a criminal prosecution. This is only available if you act transparently.
How to Make a Disclosure
The process is handled through the HMRC Digital Disclosure Service (DDS). The process can be broken down into three steps:
- You must first inform HMRC that you intend to make a disclosure. You will receive a Disclosure Reference Number (DRN).
- You then have 90 days to calculate the tax, interest, and penalties.
- Provide the final figures and arrange for payment.
Our in-house Tax Director, Liam Coulter, can assist with your online disclosure, walking you through the process, calculating the outstanding tax due along with any interest and potential penalty charges before making the submission to HMRC on your behalf. To find out more, please get in touch.