What’s The Difference Between A Prompted And An Unprompted Disclosure?

If you go to HMRC before they have any inclination about underpayment of tax and you make a full and frank disclosure of what you have done to hide tax from HMRC, how you did it and even why you did it; then – and only then – will there be a reduced penalty. That is an unprompted disclosure.

A prompted disclosure is anything else.

Here’s an example of how strict HMRC are with this rule. There was a carpenter called Joe who worked on a barn, a very big and posh barn. He contracted five other carpenters to help with the work. They stuffed half of their income in their back pockets and declared the other half.

Joe was sent a letter saying that HMRC would like to have a chat with him. He contacted the five other carpenters and warned them that HMRC might soon be knocking on their doors.

The five quickly made – what they thought would be – an unprompted disclosure, with the aim of reducing their penalties. But HMRC argued that the penalty was prompted, because they had started the investigation, the carpenters lost.

It’s a common misconception that if you go to HMRC before an enquiry letter hits the mat then you can make an unprompted disclosure. THIS IS NOT THE CASE. You must make the declaration before HMRC has ANY IDEA that there might have been underpayment of tax.

This is an extract from Penalties for inaccuracies in returns and documents DECODED which costs £10. You can get more information and buy the ebook here.