HMRC error correction powers – Introduction
HMRC has published draft legislation that would fundamentally change the relationship between taxpayers and the Revenue.
Under the proposals, taxpayers would be legally obliged to correct errors in past tax returns, even errors made innocently, with failure to do so opening the door to assessments stretching back 20 years and significantly enhanced penalties.
The consultation on “Modernising the Correction of Errors” closes this month, and practitioners should pay close attention.
This is not a minor tweak to existing rules. It is a substantial expansion of HMRC’s powers that could catch unwary taxpayers who believed their affairs were long since settled.
The Current Position
Under existing law, there is no general obligation on a taxpayer to correct an innocent error in a tax return once the filing deadline and enquiry window have passed.
If you made a genuine mistake on your 2018 return and HMRC’s enquiry window closed without action, that was generally the end of the matter – absent carelessness or deliberate behaviour that would extend HMRC’s assessment time limits.
The new proposals would change this fundamentally.
What’s Being Proposed
The draft legislation introduces a general requirement for taxpayers to notify HMRC of errors in documents previously submitted, including tax returns and accounts, once the taxpayer becomes aware of them.
This obligation would apply regardless of how the error arose.
Failure to comply with this new requirement would itself constitute a failure to comply with a tax obligation. The consequences are significant:
- Extended assessment time limits: HMRC would be able to issue assessments up to 20 years after the end of the relevant tax year where a taxpayer has failed to correct a known error.
- Enhanced penalties: Failure to correct would attract penalties at the higher rates associated with deliberate behaviour, even where the original error was innocent.
- Correction notices: HMRC would gain powers to issue formal “correction notices” requiring taxpayers to correct specific errors that HMRC has “reason to suspect” exist in previously submitted documents.
The Retrospective Sting
Perhaps most concerning is the potential retrospective effect.
The proposals contemplate that the new obligation to correct would apply to errors in documents submitted before the legislation comes into force.
HMRC has suggested the rules could reach back to errors dating from 2007.
Consider the following scenario…
… you made an innocent mistake on your 2015 tax return… Your accountant spots it while reviewing old records in 2027.
Under the new rules, you would be obliged to notify HMRC. If you failed to do so, HMRC could potentially assess you for the underpaid tax with penalties, treating your failure to correct as tantamount to deliberate behaviour.
When Does “Awareness” Arise?
The draft legislation hinges on the taxpayer becoming “aware” of an error.
But awareness is a slippery concept.
Does it mean actual knowledge?
Constructive knowledge?
What if your adviser spots something but doesn’t tell you?
The answers to these questions will determine how broadly the new rules bite.
Early indications suggest HMRC intends a broad interpretation, which will create obvious difficulties for taxpayers who may have no practical means of reviewing years of historic returns for potential errors.
The “Correction Notice” Power
Separately, HMRC would gain powers to issue correction notices where it has “reason to suspect” that a document contains an error.
This tends to be a relatively low legal threshold. For instance, “reason to suspect” is not less than “evidence of” or even “reasonable belief that.”
Receipt of a correction notice would trigger the taxpayer’s obligation to correct.
Failure to respond appropriately could then be characterised as a failure to comply, with all the consequential effects on assessment time limits and penalties.
Concerns for Practitioners
This consultation raises significant concerns:
- Proportionality: Is it proportionate to treat a failure to self-report an innocent error as equivalent to deliberate non-compliance? The penalty regime suggests it is — but this jars with basic principles of fairness.
- Certainty: The proposals undermine the finality that taxpayers expect once enquiry windows close. Tax affairs may never be truly “settled” if an obligation to correct can revive long-closed years.
- Practical compliance: How are taxpayers supposed to comply? Are they expected to review every historic return indefinitely, hunting for errors they didn’t know they made?
- Professional obligations: What are the implications for advisers who become aware of historic errors? The overlap with professional conduct rules and legal privilege will require careful navigation.
Respond to the Consultation
The consultation closes in September 2026.
If the proposals proceed in their current form, they represent a significant shift in the balance between taxpayer and Revenue.
Practitioners and representative bodies should engage vigorously with the process.
The stated aim is “modernising” error correction. But modernisation should not mean converting innocent mistakes into quasi-deliberate defaults simply because the taxpayer later discovered them. That is not modernisation — it is mission creep.
The consultation document “Modernising the Correction o f Errors” is available on GOV.UK. Responses are due by September 2026.