HMRC disclosures - one size fits all?

This article was first published in Taxation magazine on 31 July 2023 as a response to a readers’ forum query.

The situation in brief was that there was an outstanding DLA balance after the year end, but the tax adviser had been advised that it would be repaid. For various reasons, the balance was not repaid to the company and a s455 charge should have been included in the CT600 without a claim for the corresponding relief. The loan was later repaid, however the CT600 was incorrect as the relief had been incorrectly claimed.

The question was what might be the best strategy to deal with such an error where the cost and time required to make a disclosure through HMRC’s digital disclosure service far outweighs the benefits of doing so, for HMRC, the adviser and the client.

As you may be aware, HMRC is pushing taxpayers and agents to use as many automated processes as possible. Whilst these will work for the majority of situations, HMRC does not have policies and procedures in place to deal with ‘everyone else’ and in some cases, this can make it difficult to comply with obligations or rectify matters.

In relation to disclosures, HMRC requires that disclosures are made via the Digital Disclosure Service. Where this would be especially cumbersome, HMRC has suggested that amended returns should be filed online – even where you are out of time to do so and the software doesn’t allow you to!

In a case like this, a whitespace disclosure may be the simplest and most efficient way to resolve matters as it is a one off transaction and there is no longer any tax due to HMRC.

The whitespace disclosure should include an explanation of events, highlighting that because the loan has been repaid, no tax is due and including a calculation of any interest due to HMRC until say, the date of repayment of the loan to the company. I would also highlight any changes made to the process for preparing the company’s tax return in respect of Director’s loans since the error was discovered.

Finally, I suggest requesting a suspended penalty as this is a careless error resulting in an inaccurate return and the error was a ‘one off’. Suggested conditions for suspending the penalty would include the client providing you with information on any outstanding loans at the year end and no repayments being taken into account without documentary evidence.

There is a risk that putting a whitespace disclosure can flag the return for enquiry and the client should be made aware of this. The other question readers may consider is that since the position has been rectified and no tax is due, whether any declaration must be made. Technically, the tax return is incorrect and as HMRC can go back and assess the tax on the basis of reasonable care or carelessness, the matter does need to be disclosed and rectified. Whether an enquiry is raised may well depend on the size and risk profile of the company.

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