Taxpayers who assume their tax affairs are settled with HMRC may need to reconsider, as even minor errors from years past could resurface under new proposals, according to Fiona Fernie, a partner at audit, tax, and business advisory firm Blick Rothenberg.

HMRC has issued a consultation titled Modernising the Correction of Errors, which includes a proposal requiring taxpayers to correct inaccuracies in previously submitted tax returns or other documents once they become aware of them. UK tax consultations typically invite responses from tax professionals, businesses, and the public before legislation is finalised, meaning the rules as drafted could still change — but the direction of travel signals a meaningful shift in compliance expectations.

The concern lies in how these rules would operate in practice and the fact that many taxpayers may be unaware the measure is progressing through HMRC's legislative pipeline.

The correction obligation is tied to statutory time limits for HMRC assessments. These limits are generally four years where reasonable care was taken, six years where behaviour was careless, and up to 20 years where an error was deliberate. Under the proposed framework, taxpayers who discover errors while reviewing old documents or returns — potentially dating back as far as 20 years — could find themselves in dispute with HMRC if they disagree about whether corrections were required. This creates a practical tension with UK self-assessment record-keeping rules, which generally require taxpayers to retain records for about five years after the relevant 31 January submission deadline, well short of the two-decade window the proposed correction regime could reach back to.

Consider a scenario in which a taxpayer discovers an error five years after filing a return. Having taken reasonable care in preparing the original submission, the taxpayer concludes that HMRC is out of time to assess additional tax and determines no correction is needed.

The difficulty arises later if HMRC concludes that the original error was careless. Under the proposed legislation, because the taxpayer did not correct the error, HMRC could argue they failed to comply with their obligations. Crucially, HMRC could treat the failure to correct as deliberate behaviour for the purposes of assessment time limits and penalties — even though the initial error itself was not deliberate.

Concerns over HMRC overreach

The situation becomes more troubling when enough time has passed that the taxpayer no longer has an obligation to retain records and lacks documentary evidence to explain to HMRC what happened and why.

The consultation does not make clear how a taxpayer would prove to HMRC that they had not discovered an error within the reporting time limits. Nor does it address how a taxpayer could demonstrate that it was reasonable to decide not to report an error they had found.

The proposal marks a significant shift in HMRC's approach. Traditionally, HMRC bears the responsibility of proving careless or deliberate behaviour. Under the new rules, that burden would effectively transfer to taxpayers in these circumstances.

Fernie argues that while HMRC's underlying objective is sensible, the approach is flawed. The legislation, she contends, requires clearer safeguards and a finite time limit for making corrections. Without such protections, a measure designed to modernise compliance could end up undermining it — if reviewing old tax affairs and finding a historic error carries the risk of an HMRC dispute and a penalty for non-reporting, taxpayers may have little incentive to conduct such reviews at all.

Fiona Fernie is a partner at leading audit, tax and business advisory firm Blick Rothenberg.