Draft legislation: Modernising the correction of errors – LITRG response

The draft legislation contains new requirements to correct inaccuracies in returns and documents provided to HMRC. There are two elements to the measure: an obligation on taxpayers to correct errors once they become aware of them and a new power for HMRC to issue a customer correction notice.

Although we recognise that the creation of a general obligation to take corrective action fills a current gap in civil law, we have concerns with some aspects of this measure.

Where a taxpayer does not take corrective action in line with the new obligation to correct, the inaccuracy will be treated as deliberate for the purposes of penalties. This is a significant change in the determination of a taxpayer’s behaviour. This appears to be intended as a deterrent, to encourage taxpayers to take corrective action.

Given the significance of this change and the fact it will apply to a wide range of returns and documents, in order for it to be implemented fairly, HMRC will not only need to provide clear guidance, but they will have to undertake a lot of work to raise awareness of the obligation.

The customer correction notice is also a new requirement and notice for taxpayers to understand. The draft legislation does not provide a minimum timeframe that HMRC must allow for responses to customer correction notices. We suggest a minimum timeframe of 60 or even 90 days. We also think the legislation should impose a requirement on HMRC to respond to the taxpayer, confirm receipt of the correction and close the process. This is an important safeguard for taxpayers and will help provide them with certainty.