The government has published draft legislation that would change how taxpayers are expected to deal with errors in returns and other documents submitted to HMRC. The proposals introduce a clearer legal obligation to correct inaccuracies once they are identified, together with a new HMRC power to issue a Customer Correction Notice.

For businesses, employers and individual taxpayers, the message is clear: once an error is known, prompt action will be essential. Failing to take reasonable steps to correct an inaccuracy could have significant penalty and assessment consequences.

What is changing?

  • A new obligation to correct errors: Taxpayers who become aware of an inaccuracy in a return or document must take reasonable steps to correct it.
  • Use the correct route: Where an amendment mechanism is available, taxpayers will be expected to use it. Where it is not, they may need to notify HMRC directly.
  • A new Customer Correction Notice: HMRC will be able to require a taxpayer to review a suspected inaccuracy, correct it or explain why no correction is needed.

Key points to note

  • Known errors must be addressed: The proposals focus on what happens after a taxpayer becomes aware that something previously submitted may be inaccurate.
  • Failure to act may be treated as deliberate: If a taxpayer does not take reasonable steps to correct a known error, the rules may treat the inaccuracy as deliberate for penalty and time limit purposes.
  • CCNs will require a response: A Customer Correction Notice will require taxpayers to engage with the issue by the deadline, either by correcting the position or explaining why no correction is required.
  • Record keeping will be important: Businesses should keep evidence of when an issue was identified, who reviewed it and what action was taken.

Why this matters

The proposals represent a shift towards earlier taxpayer-led correction. HMRC’s stated objective is to encourage taxpayers to resolve known inaccuracies themselves, allowing compliance resources to focus on more complex cases.

In practice, this means businesses will need robust internal processes for identifying, escalating and documenting tax errors. Areas such as PAYE, benefits-in-kind, VAT reconciliations, employment status, corporation tax provisions and year-end adjustments may need particular attention.

What should taxpayers do now?

  • Review accounting, payroll and tax compliance processes to ensure errors are identified promptly.
  • Create a clear internal escalation route for suspected tax inaccuracies.
  • Document the date an error is identified, the analysis undertaken and the decision reached.
  • Seek advice where there is uncertainty over whether an issue is an error, a judgement call or a technical position that can reasonably be supported.

Next steps

The technical consultation is open until 7 September 2026, with the proposals expected to be considered as part of the Finance Bill 2026-27 process. Businesses should use this period to assess whether existing compliance procedures are strong enough to meet the proposed requirements.

If you are concerned about a historic error, have received correspondence from HMRC or would like to review your tax governance procedures, please get in touch. Our team can help you assess the position and decide on the appropriate next steps.