Missed Income on Your Tax Return? Don’t Pay More to HMRC Than You Have To
HMRC’s “nudge” letters have become a regular feature of UK tax life. Maybe you’ve had one yourself, a letter hinting that HMRC believes you’ve not declared all your income, especially from savings, property or overseas sources.
Or perhaps you’ve realised on your own that you’ve missed income from previous years and are thinking about putting things right.
The instinctive reaction is usually:
“I’ll gather everything I’ve missed for as many years as I can, calculate the tax and interest, add a penalty for being ‘careless’ or ‘deliberate’, and send it off through an HMRC disclosure form.”
That feels responsible and honest, but if you do this without understanding the rules, you can easily:
Offer more years of tax than HMRC is legally allowed to collect
Overstate penalties because the behaviour and time limits haven’t been properly considered
Or, at the other extreme, under‑disclose, leading HMRC to reject your disclosure altogether
No one wants to overpay tax and penalties. Equally, no one wants to go back to HMRC after a rejected disclosure and have that uncomfortable conversation.
This blog explains the key concepts you need to understand before making a disclosure, and why getting advice first can save you a lot of money and stress.
Two Different Problems: Inaccurate Returns vs No Returns
When past income has been missed, HMRC sees things in two broad ways:
Inaccuracy position – you did file tax returns, but they contained errors or omissions (for example, you missed rental income or foreign interest)
Failure to notify (FTN) position – you should have told HMRC you needed to file a return, but you never registered or filed at all
The distinction matters, because:
Different time limits apply
Different penalty rules apply
The overall amount you legally owe HMRC can change dramatically
Let’s look at each in turn.
1. Inaccuracy: When You Filed Returns But Missed Income
If you submitted Self Assessment tax returns but left out some income (intentionally or not), your returns are inaccurate. HMRC then asks: how far back can they go to correct those inaccuracies?
The answer depends on your behaviour:
Reasonable care (normal time limits)
HMRC can go back 4 tax years from the end of the year in which they discover the loss of tax
Careless behaviour (extended time limits)
HMRC can go back 6 tax years
Deliberate behaviour (further extended time limits)
HMRC can go back up to 20 tax years
So choosing “careless” vs “deliberate” on an HMRC disclosure form is not just a label . It changes how many years of tax you’re effectively putting on the table.
This is where many DIY disclosures go wrong. People:
Automatically assume “careless” or “deliberate”
Include every year they can think of
End up offering tax for years that are actually out of HMRC’s reach under the law
If HMRC is no longer allowed to assess those older years, paying for them becomes a choice, not a legal obligation. More on that below.
2. Failure to Notify: When You Didn’t File Returns At All
If you never registered for Self Assessment or never filed returns when you should have, HMRC sees this as a failure to notify (FTN).
This is treated more harshly than inaccurate returns, because from HMRC’s perspective, you didn’t just make a mistake on a form – you didn’t tell them you had tax to pay at all.
Key points about FTN:
HMRC can typically look back up to 20 years from the relevant tax year end
FTN penalties are often higher than inaccuracy penalties
A “reasonable excuse” (for example, genuinely not knowing you had taxable income in certain circumstances) can reduce the number of years or penalties, but it needs to be carefully argued
This is why it’s crucial to work out:
“Were returns filed but wrong (inaccuracy), or should returns have been filed and weren’t (FTN)?”
The answer massively impacts how many years HMRC can assess and what penalties apply.
Why Timing Matters: Year‑Ends and Disclosures
There’s another subtlety many people – and even some advisers – overlook: timing.
If you’re close to a 5 April tax year end (say, late March or early April), one of the oldest tax years might be about to drop out of HMRC’s assessing window.
That means:
If you rush a disclosure before 5 April, you might include an extra year you don’t need to
If you wait until after 5 April, HMRC may legally be unable to assess that oldest year (depending on behaviour and circumstances)
Each situation is different, but this is a perfect example of why you should get advice before you submit, not after.
Voluntary Restitution: When You Pay Tax HMRC Can’t Legally Demand
If you include years that HMRC is no longer legally entitled to assess, you are effectively paying under voluntary restitution (VR).
In other words, HMRC is saying:
“We can’t legally demand this tax for those years anymore… but would you like to pay it anyway?”
If you put tax, interest and penalties for out‑of‑time years into your disclosure:
HMRC may accept it as voluntary restitution
Or they might reject or adjust your disclosure once they realise those years are out of date
Or they might accept the payment but later issue a refund for the out‑of‑time years
In all cases, you’ve created extra admin and uncertainty, and potentially offered more tax than you needed to. Again, no client thanks their adviser for overpaying HMRC.
Behaviour and Penalties: Why the Story Matters
When you use HMRC’s Digital Disclosure Service, you’re asked to self‑assess:
What kind of behaviour led to the omission?
Reasonable care
Careless
Deliberate
That choice doesn’t just affect penalty percentages – it also affects:
How many years HMRC can go back (4 / 6 / 20)
Whether penalties might be reduced or even suspended
This is why it’s vital to properly understand how and why the income was missed.
Examples:
If the client genuinely didn’t know they were entitled to certain income at the time, or relied reasonably on professional advice, there may be an argument that they took reasonable care. In that case:
HMRC might only go back four years, and
Penalties could potentially be £0
If the disclosure is unprompted (i.e. you go to HMRC before they send a nudge letter or open an enquiry), the starting penalty range is usually much lower – in some cases, the minimum can be 0% of the tax due.
For inaccuracy penalties (not FTN), there is also the concept of suspension for careless errors:
HMRC is supposed to consider suspending careless penalties where appropriate
If you agree suspension conditions and the client meets them over the agreed period, the penalty is ultimately cancelled
This can make a huge financial difference, but only if the behaviour has been correctly identified and argued.
When Offshore Income Is Involved: Penalties Get Much Tougher
If the omitted income or gains relate to offshore sources, such as foreign bank accounts, overseas property or offshore trusts, the risk level rises significantly.
In many offshore cases, HMRC can look at:
Harsher penalty regimes, including “failure to correct” (FTC), where penalties can start at 100% of the tax due and go higher in certain circumstances
This is specialist territory. If offshore income or gains are part of the picture, it’s especially important not to try to handle a disclosure alone.
Why Professional Help Matters
Disclosures to HMRC must be handled carefully. The risks of “just having a go” include:
Paying tax and penalties for too many years
Agreeing to a higher behaviour rating (e.g. “deliberate”) than is justified
Getting penalties wrong, leading to HMRC rejecting your disclosure
Losing the benefits of an unprompted disclosure by approaching HMRC in the wrong way
At J‑Benn Finance, we help clients:
Work out whether they’re in an inaccuracy or failure to notify situation
Correctly identify the behaviour and the legally assessable years
Structure disclosures to minimise penalties and avoid overpaying
Deal calmly and professionally with HMRC officers
Done properly, a well‑handled disclosure can:
Reduce the number of years HMRC can assess
Lower or even remove penalties
Avoid unnecessary voluntary restitution
Give you peace of mind that the matter is closed on the right basis – not just the quickest
Worried You’ve Missed Income? Talk to Us Before You Talk to HMRC
If you’ve realised you’ve left income off past tax returns, or you’ve received an HMRC nudge letter and don’t know what to do next, you don’t have to navigate this alone.
J‑Benn Finance can:
Review your position confidentially
Explain your options in plain English
Help you make a correct, complete and fair disclosure
Aim to protect you from paying tax and penalties you don’t legally owe
The sooner you speak to us, the more options we’re likely to have.
