Duty to correct tax return errors

As part of its L-day publication of draft legislation for the Finance Bill 2026/27, HMRC published draft legislation (together with supporting material) for the introduction of a new taxpayer obligation to correct errors on tax returns. The consequences of failing to take reasonable steps to correct discovered errors will be that those errors will then be treated as "deliberate" with significantly more punitive sanctions. The accompanying materials do not, at this stage, give an intended date for introduction of these rules.

Background

In autumn 2024, the government published a consultation on new ways to tackle non-compliance. The summary of responses, published in spring 2025, committed to exploring more efficient approaches to taxpayer self-correction. At Budget 2025, the government confirmed that it would publish draft legislation in 2026 on enhancing HMRC's compliance powers to ensure taxpayer errors in tax returns are corrected.

Draft legislation: duty to correct

The draft legislation has two elements.

The first element is a new requirement to correct inaccuracies in returns or documents provided to HMRC. Specifically, the requirement is "a duty to take reasonable steps to secure the correction of errors in certain documents sent to HMRC" where a person "becomes aware of the inaccuracy at some later time".

The obligation is to correct the error or, where that is not possible, to notify HMRC where the error cannot be made directly. However, the obligation only arises where the taxpayer or HMRC remains within existing statutory time limits for amending returns or making assessments.

Where a taxpayer becomes aware of an inaccuracy and does not take reasonable steps to correct or notify HMRC, the inaccuracy is treated as deliberate for the purposes of penalties and assessment time limits. The consequences of an error being treated as deliberate rather than, say, careless are significant. For example, deliberate errors will typically attract penalties calculated on a higher percentage of the lost revenue and may lead to extended assessment time limits of up to 20 years.

Draft legislation: correction notices

The draft legislation will also give HMRC a new power to issue a Customer Correction Notice where "HMRC have reason to suspect that the document contains an inaccuracy", which requires the taxpayer to check their position and either take reasonable steps to correct the inaccuracy or explain why no correction is needed. The Correction Notice must specify "the inaccuracy or kind of inaccuracy which HMRC have reason suspect the document contains".

If a taxpayer fails to comply with a Customer Correction Notice, it is to be presumed that the inaccuracy was careless (unless in fact it was deliberate or treated as deliberate) or the taxpayer satisfies HMRC that they took reasonable care to avoid the inaccuracy.

Comment

This is a significant extension of HMRC's powers, introducing important new sanctions where a taxpayer discovers an error and fails to correct that error. The legislation will apply to a wide range of returns, including income tax, VAT and corporation tax returns.

Assuming the new rules come into force, businesses should ensure that they put in place robust processes for identifying and correcting errors in tax returns promptly. However, the rules do not currently specify at what level the "awareness" must arise in order to trigger the obligation and there will be uncertainty as to whether the obligation will be limited to circumstances where those with responsibility for tax compliance or higher management have the relevant "awareness".