Can we fix it? Yes, we must! HMRC’s new error correction powers

The Government has published draft legislation on its long-trailed “Modernising the Correction of Errors” proposals, and the message to taxpayers is clear: if you spot an error in your tax return, it is now squarely your job to put it right.

HMRC’s published tax gap figures consistently identify careless errors by individuals and small businesses as the largest single contributor to the tax gap. These proposals are a direct response – an attempt to close that gap by making self-correction an explicit legal obligation rather than a mere expectation.

What’s changing?

Two new mechanisms are being introduced. The first is a general taxpayer obligation to take corrective action whenever a taxpayer becomes aware of an inaccuracy in a return or document submitted to HMRC. That means either amending the return directly or, where that is not possible, notifying HMRC. The obligation bites where existing statutory time limits for amendments or assessments still apply.

The second is a new Customer Correction Notice (CCN). This gives HMRC the power to write to a taxpayer and require them to review a specific position, and then either correct it or explain why no correction is needed. It is billed as a lighter-touch alternative to a full enquiry – targeted, issue-specific and designed to resolve things quickly.

The penalty implications

Under the new framework, a taxpayer who takes reasonable steps to correct an error they have identified should avoid a careless inaccuracy penalty altogether. However, a taxpayer who becomes aware of an inaccuracy and fails to take reasonable steps to correct it will have that error re-characterised as deliberate, with all of the consequences that brings for penalty rates and extended assessment time limits.

For CCNs specifically, there is a notable carve-out. A taxpayer who corrects an inaccuracy in response to their first CCN within a rolling six-year window will not face a careless penalty at all. Receive a second notice within that period, and the protection falls away. Meanwhile, if HMRC later scrutinises a correction (or a failure to correct) prompted by a CCN, any errors found are presumed careless unless HMRC can show they were deliberate, or the taxpayer can demonstrate reasonable care was taken in the first place. 

A proportionate tool, or another compliance burden?

The policy paper frames these changes as a way to free up HMRC’s resources for tackling more complex non-compliance, rather than spending time chasing straightforward mistakes. In principle, if CCNs operate as a quick mechanism for resolving discrete issues, they could be a genuine improvement on the current lengthy enquiry process for both sides.

The concern, however, is about how these powers will be exercised in practice. HMRC’s approach to penalties has noticeably hardened in recent years, with allegations of deliberate behaviour appearing in cases that would previously have been treated as careless. A framework that automatically upgrades a failure to correct into deliberate conduct creates obvious risks, particularly in areas of genuine uncertainty, where taxpayers (and their advisers) might legitimately disagree with HMRC over whether there is an inaccuracy to correct at all.

The bigger picture

These proposals sit within the Government’s broader Tax Administration Framework Review and the HMRC Transformation Roadmap – they are part of a sustained push to shift routine compliance activity onto taxpayers, reserving HMRC’s bandwidth for higher-risk cases. Whether the result is genuinely lighter touch for the compliant majority, or simply more box-ticking, will depend on how proportionately the new powers are deployed.

View the policy paper.