Do I have a legal obligation to disclose past tax errors?

This article is adapted from a query in Taxation magazine. Our response was published there on 16 September 2024.

As tax advisers, we are told that we ‘have an obligation’ to help clients disclose past tax errors and omissions. But what is the basis for this requriement? There is legislation in Finance Act 2017 which required a person to correct past non-compliance in relation to offshore matters by 30 September 2018 or face a penalty. It is true that prior to this requirement, there was no obligation to correct non-compliance relating to overseas matters and even now, there appears to be no specific legal requirement to disclose or resolve UK source non-compliance.

Despite this, professional bodies have always made it clear in the Professional Conduct guidelines that there is an obligation to disclose past errors to HMRC and we are told that taxpayers have an obgliation to keep their affairs up to date. The question here was essentially what is the legal basis for the advice in PCRT (Professional Conduct in Relation to Taxation)?

The Requirement to Correct referred to in Finance Act 2017 refers to all periods up to 6 April 2017. There is no legal requirement to make a disclosure of errors occurring after that date for tax arising as a result of overseas assets or at all for tax arising from UK assets.

Generally, once a discrepancy is identified and the client becomes aware of it, if the client does not wish to disclose the under-declaration of tax, this becomes tax evasion as there is knowledge on the client’s part that the tax is due. Tax evasion is a money laundering offence and if the client is caught they can be subject to criminal proceedings.

Where the adviser continues to act for the client knowing that the client will not/does not wish to make a disclosure, the adviser will be complicit in money laundering and this is contrary to paragraph 2.23 of the PCRT: A member must comply with all relevant legal and regulatory obligations when dealing with a client’s tax affairs and assist their clients to do the same.

Assistance with tax evasion/money laundering is illegal and may result in severe penalties.

However, where an error from deliberate behaviour (or carelessness) took place more than 20 years (six years for UK assets) ago comes to light and the client becomes aware of it, there is no tax evasion if there is no disclosure as HMRC is now out of time to assess the tax.

There is no legal basis under which the tax would fall due and therefore no tax evasion if it is not declared; continuing to act in these circumstances without a disclosure is in line with the PCRT.

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