October 1, 2026/
Business & Tax News and Developments September 2026 Home News Business &...
Nobody likes discovering they have a tax problem.
Perhaps you’ve realised that rental income was never declared, you’ve missed several Self Assessment tax returns, or your previous accountant overlooked something that has only recently come to light. In many cases, taxpayers are completely unaware that an error has been made until they review their affairs or receive a prompt from HMRC encouraging them to check their tax position.
Whatever the circumstances, ignoring the issue is rarely the best option. HMRC now receives vast amounts of information from employers, banks, letting agents, financial institutions, Companies House and overseas tax authorities. As its data-sharing capabilities continue to improve, historic tax irregularities are becoming increasingly easier to identify.
Where HMRC has not already opened an enquiry, making a voluntary disclosure can often lead to a more favourable outcome. One of the main ways of doing this is through HMRC’s Digital Disclosure Service (DDS).
Making a disclosure does not automatically mean penalties will be avoided, but it does demonstrate cooperation and can significantly reduce the financial consequences compared with waiting for HMRC to discover the issue first.
The Digital Disclosure Service (DDS) is HMRC’s online facility that allows taxpayers to voluntarily disclose unpaid tax where no other specialist disclosure facility is more appropriate.
Rather than waiting for HMRC to identify an error through its compliance activity, DDS enables individuals and businesses to come forward, explain what went wrong and calculate the tax that should have been paid.
The service is designed for people who want to put their tax affairs in order voluntarily. In many cases, taking the initiative before HMRC makes contact results in lower penalties than a disclosure made after an enquiry has already begun.
Although the online process itself is relatively straightforward, preparing an accurate disclosure often requires considerably more work than many taxpayers expect. Identifying the correct tax years, reconstructing records, calculating tax, interest and penalties, and determining the appropriate behavioural category all require careful consideration.
A disclosure should never be approached as simply completing an online form. It is, in effect, a formal statement to HMRC that should be complete, accurate and supported by appropriate calculations.
DDS is commonly used where a taxpayer has identified an error that has resulted in insufficient tax being paid and wishes to correct it before HMRC opens an enquiry.
Situations we regularly encounter include individuals who failed to register for Self Assessment, landlords who did not realise rental income had to be reported, directors who omitted dividend income from earlier tax returns, and business owners who understated profits because of bookkeeping errors.
Sometimes the issue arises after changing accountants. A new adviser reviewing previous returns may identify mistakes that have gone unnoticed for several years. In other cases, taxpayers simply become aware of their obligations much later than they should have.
The important point is that the disclosure should generally be made before HMRC contacts you about the specific issue. Once an enquiry has started, the opportunity to make an unprompted disclosure has usually passed, and this can have a significant impact on the penalties charged.
It is equally important to understand that DDS is not the correct route in every case. HMRC operates several specialist disclosure facilities for particular types of tax issues, including offshore matters. Choosing the wrong disclosure route can delay matters and create unnecessary complications, which is why professional advice is often worthwhile before notifying HMRC.
DDS can be used by a wide range of taxpayers, provided another specialist disclosure facility does not apply.
This includes individuals, sole traders, landlords, company directors, partners in partnerships and companies that have identified historic tax irregularities.
The underlying issue can involve many different taxes, including Income Tax, Capital Gains Tax, Corporation Tax and National Insurance contributions. However, every case should be assessed on its own facts before deciding whether DDS is the appropriate disclosure route.
One common misconception is that DDS is simply a facility for people who have failed to submit tax returns. In reality, it is much broader than that. It can be used whenever there has been an underpayment of tax that the taxpayer wishes to disclose voluntarily, provided the circumstances fit within HMRC’s rules.
The disclosure process begins by notifying HMRC that you intend to make a voluntary disclosure.
Once this notification has been submitted, HMRC normally issues a Disclosure Reference Number (DRN) together with a Payment Reference Number (PRN). From that point, taxpayers generally have 90 days to prepare and submit their disclosure.
While the online notification takes only a few minutes, the work involved during the following 90 days is often substantial.
The first task is establishing exactly which tax years are affected. This frequently requires reviewing historic bank statements, bookkeeping records, company accounts, rental records and previous tax returns. Where records are incomplete, additional work may be needed to reconstruct income and expenditure from other available evidence.
Once the figures have been established, the tax liability must be calculated together with any statutory interest due. Consideration must also be given to penalties, which depend on several factors including the taxpayer’s behaviour, whether the disclosure is prompted or unprompted, and the quality of the information provided.
HMRC expects disclosures to be complete and accurate. A partial disclosure that omits relevant information is unlikely to achieve the same outcome as one that fully explains the position and provides supporting calculations.
Where possible, payment should accompany the disclosure. If immediate payment is not feasible, HMRC may be willing to consider a Time to Pay arrangement depending on the taxpayer’s financial circumstances.
One of the biggest mistakes taxpayers make is rushing to notify HMRC before fully understanding the position. Once the 90-day clock starts, there is limited time to gather records, prepare calculations and ensure the disclosure is accurate. In many cases, carrying out a thorough review before notifying HMRC is the more sensible approach.
One of the first questions clients ask is, “How many years do I need to disclose?” The answer depends on why the tax was underpaid.
HMRC’s assessment time limits are determined by the taxpayer’s behaviour rather than simply the age of the error. Broadly speaking, HMRC can assess:
Behaviour | HMRC Time Limit |
Genuine mistake despite taking reasonable care | Up to 4 years |
Careless behaviour | Up to 6 years |
Deliberate behaviour | Up to 20 years |
Determining which category applies is not always straightforward. There can be a fine distinction between a genuine mistake and carelessness, particularly where the legislation is complex or professional advice has previously been obtained.
For example, someone who genuinely misunderstood the tax treatment of overseas income after taking reasonable steps to understand their obligations may be viewed very differently from someone who knowingly chose not to declare rental income.
This is one of the reasons why every disclosure should be reviewed carefully before submission. Applying the wrong behavioural category can affect both the years under review and the level of penalties.
It is also worth remembering that HMRC’s assessment powers and disclosure obligations are separate issues. Just because HMRC may only be able to assess certain years does not necessarily mean the position is straightforward. Understanding the applicable legislation and the facts of each case is essential before deciding what should be included in a disclosure.
Making a voluntary disclosure does not remove the tax liability, and it does not automatically eliminate penalties. However, it can substantially reduce them.
When considering penalties, HMRC looks beyond the amount of tax involved. It will assess factors such as:
An unprompted disclosure is generally viewed far more favourably than one made after HMRC has already identified the issue. This is why acting early can make a significant financial difference.
The quality of the disclosure also matters. HMRC expects taxpayers to provide a full explanation of what went wrong, disclose all affected tax years, and support their calculations with appropriate records. An incomplete disclosure may lead to further questions, delays and, in some cases, higher penalties.
Interest is also charged on unpaid tax and will usually continue to accrue until the liability is settled.
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In our experience, the biggest problems rarely arise because taxpayers are unwilling to put matters right. They arise because they act too quickly or without fully understanding the process.
One common mistake is notifying HMRC before reviewing the underlying records. Once the disclosure period begins, taxpayers often find themselves trying to reconstruct several years of financial information against a strict deadline.
Another frequent issue is using the wrong disclosure facility. HMRC operates several voluntary disclosure routes, and selecting the wrong one can delay the process or result in additional correspondence.
We also see disclosures that fail to include every affected tax year or overlook legitimate deductions and reliefs. While it is important to disclose all taxable income, it is equally important to claim every allowable expense and relief to which you are entitled. Paying more tax than necessary is no better than paying too little.
Finally, many people assume HMRC will simply accept the figures submitted. In reality, HMRC may ask further questions or request supporting evidence before agreeing the disclosure. Preparing robust calculations from the outset can significantly reduce the likelihood of further enquiries.
One of the biggest misconceptions we encounter is that making a disclosure is simply a matter of telling HMRC how much tax is owed. In reality, the most important work often takes place before HMRC is ever contacted.
Over the years, we have advised clients who believed they had substantial historic liabilities, only to discover that they were entitled to deductions, reliefs or exemptions that significantly reduced the amount payable. Equally, we have seen taxpayers prepare disclosures based on incomplete information, creating avoidable complications that could have been prevented with a thorough review.
The decision to notify HMRC should therefore come after the facts have been established—not before. Understanding which disclosure facility applies, identifying the correct tax years, reviewing available records and ensuring the calculations are complete can materially affect the outcome.
Where multiple years are involved, or the disclosure includes rental income, overseas assets, company matters or Capital Gains Tax, obtaining professional advice before making contact with HMRC is often one of the most valuable investments a taxpayer can make.
Discovering a historic tax error can be unsettling, but taking prompt action is almost always better than waiting for HMRC to identify the issue.
The Digital Disclosure Service provides a structured way to correct unpaid tax where no specialist disclosure facility applies. A well-prepared voluntary disclosure can reduce penalties, demonstrate cooperation and bring historic tax affairs up to date with greater certainty.
Before notifying HMRC, it is worth taking the time to establish the full position. Identifying the correct disclosure route, reviewing all affected tax years and preparing accurate calculations can make a significant difference to both the financial outcome and the time it takes to resolve the matter.
Every disclosure is different. The amount of tax involved is only one part of the picture. Understanding which years need to be disclosed, whether HMRC’s assessment time limits apply, which reliefs remain available and how penalties may be reduced requires careful analysis of the facts.
At Naail & Co Chartered Certified Accountants and Tax Advisors, we advise individuals, landlords, company directors and business owners on voluntary disclosures, historic tax irregularities and HMRC enquiries. We can review your circumstances, determine whether the Digital Disclosure Service is the appropriate route and prepare a comprehensive disclosure on your behalf.
Get in touch with Naail & Co to book your free initial consultation.
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The Digital Disclosure Service (DDS) is HMRC’s online facility for taxpayers who want to voluntarily disclose unpaid tax where no specialist disclosure route applies. It is suitable for individuals, landlords, sole traders, company directors and businesses that have discovered historic tax errors and want to correct them before HMRC opens an enquiry.
The Digital Disclosure Service (DDS) begins by notifying HMRC that you intend to make a voluntary disclosure. HMRC then issues a Disclosure Reference Number (DRN), after which you usually have 90 days to calculate the tax, interest and any penalties before submitting a complete disclosure and arranging payment or discussing a Time to Pay agreement.
You should consider using the Digital Disclosure Service (DDS) as soon as you discover that tax has been underpaid and before HMRC contacts you about the issue. Acting early can reduce penalties, demonstrate cooperation and help resolve historic tax matters more efficiently than waiting for HMRC to identify the error through its compliance checks.
Yes, in some circumstances. If late tax returns have resulted in unpaid tax, the Digital Disclosure Service (DDS) may be appropriate. However, not every case should be dealt with through DDS, and some situations require a different HMRC disclosure facility. Professional advice can help determine the correct route before making a disclosure.
You are not legally required to appoint a tax adviser, but professional advice is often beneficial. A Chartered Tax Adviser can identify the correct disclosure route, calculate the tax accurately, claim available reliefs, assess potential penalties and ensure the disclosure is complete, reducing the risk of further HMRC enquiries or unnecessary tax liabilities.
An unprompted Digital Disclosure Service (DDS) disclosure is generally viewed more favourably by HMRC than one made after an enquiry has begun. Voluntarily coming forward demonstrates cooperation and can significantly reduce penalties compared with waiting for HMRC to discover the underpaid tax through its own investigations or data-matching exercises.
The amount of any penalty depends on factors including the taxpayer’s behaviour, whether the disclosure was prompted or unprompted, and the quality of the information provided. HMRC also charges statutory interest on unpaid tax. Making a complete voluntary disclosure at the earliest opportunity usually results in lower penalties than a prompted disclosure.
Yes, it is often possible. If you cannot pay the full amount immediately, HMRC may agree a Time to Pay arrangement based on your financial circumstances. However, interest generally continues to accrue until the outstanding liability is paid in full, so seeking advice early can help minimise additional costs.
Common mistakes include notifying HMRC before reviewing all records, choosing the wrong disclosure facility, omitting affected tax years, overlooking allowable deductions and submitting incomplete calculations. A well-prepared disclosure should accurately reflect the taxpayer’s position and include all relevant supporting information to reduce the likelihood of further HMRC enquiries.
While the Digital Disclosure Service (DDS) cannot guarantee that HMRC will not ask further questions, making a complete and accurate voluntary disclosure generally places taxpayers in a stronger position than waiting for HMRC to identify the issue. It demonstrates transparency, supports compliance and often leads to a quicker resolution of historic tax matters.
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