Underpaid tax? Here is what you need to do now

As the new tax year gets underway, the time has come for businesses and individuals to review their positions to ensure that any new regulations will not leave them noncompliant.

It is also the time when many look back on the previous tax year and this can cause a sense of dread if you spot a mistake or an underpaid tax bill.

If you know that you paid less tax than you should have, it is essential that you know how to handle the situation without making things worse.

What do I need to do if I underpaid tax?

Both businesses and individuals can find themselves underpaying tax.

Larger businesses are viewed by HMRC as being generally more reliable with tax bills as they are subject to less error and tend to pay more of the tax that is owed on time – likely due to having a team of experts to ensure that is the case.

Meanwhile, SMEs have become targets of suspicion by HMRC as it has been observed that the tax gap for small businesses Corporation Tax is 40.1 per cent of the small businesses theoretical Corporation Tax liability, or £14.7 billion in absolute terms, in the 2023 to 2024 tax year.

Individuals find themselves in similar situations, with stamp duty land tax and dividend tax appearing in the news for their apparent difficulty in handling accurately.

A lack of understanding of these taxes is often given as the reason why they are underpaid so consistently.

While HMRC are working to close the tax gap, it is important that, should you be in a position where you have underpaid tax, you take action immediately.

Owning up to your mistake may make HMRC take a softer approach to you as they will understand that you were not intent on committing fraud but that an honest error occurred.

HMRC’s Digital Disclosure Service (DDS) will generally be the best course of action to manage any reports of underpaid tax, but if you are a business owner who suspects that fraud may have occurred, then it may be better to use HMRC’s Contractual Disclosure Facility (CDF).

If you were not involved in the crime, the CDF provides a way to alert HMRC to it without implicating yourself.

Is this the year of better tax compliance?

Whether this year sees higher levels of tax compliance all comes down to the actions of taxpayers.

While individuals and businesses may seek to handle taxes themselves, it is often better to get the advice of a financial professional.

This is especially true when estates or businesses are complex, as this can often leave you exposed to nuances in the rules that may never have occurred to you.

Likewise, seeking professional support can sometimes reduce your tax bill as an expert can help you access reliefs or restructure your assets to be more tax-efficient.

Our team want to see the tax gaps closed and compliance be the norm for businesses and individuals alike.

We do not want tax stress to get in the way of living your life or running your business, so we review your finances to ensure you are compliant.

Get in touch if you want to become tax confident this year.