Compliance
How ‘Modernising the Correction of Errors’ Will Affect UK Taxpayers & Businesses
A new draft legislative measure requires taxpayers to proactively correct inaccuracies in returns or documents—understanding requirements, risks, and best practice now can save trouble later.
By NomadicTax Research Team • 5-8 min read • August 7, 2026
## What’s Changing
On **13 July 2026**, HMRC published a draft legislation titled *Modernising the correction of errors*. This introduces a mandatory obligation for taxpayers to correct identified inaccuracies in their tax returns or documents. Also, HMRC gains new power to issue **customer correction notices**. ([gov.uk](https://www.gov.uk/government/publications/modernising-the-correction-of-errors?utm_source=openai))
Consultation ends **7 September 2026**, meaning this is not yet law, but early action is recommended to align practices. ([gov.uk](https://www.gov.uk/government/publications/modernising-the-correction-of-errors?utm_source=openai))
## Who is Affected
- All individuals, self-employed, small businesses or large corporations who submit tax returns or interact with HMRC through documents or claims.
- Tax agents and advisers whose clients need to correct mistakes quickly to avoid formal notices.
## What the Obligations are
- **Duty to correct**: If you discover an error in your return or documents to HMRC, you must notify HMRC of the mistake—potentially without waiting for HMRC to detect it.
- **Customer Correction Notice**: HMRC can issue a notice requiring correction within a time window. Failure could lead to penalties.
- **Materiality threshold**: There may be rules defining how serious an error must be before formal action is triggered—but even small mistakes could matter depending on circumstances.
## Risks of Non-Compliance
- Penalties if errors are not corrected or hidden.
- Loss of credibility in audits or investigations.
- Interest, surcharges, or additional taxes due if underestimated liabilities arise.
- Possible aggravation of penalties if non-correction seen as reckless or specially culpable behavior.
## Best Practices to Prepare Now
- **Internal review systems**: establish or enhance systems to spot errors before submission.
- **Training staff and agents**: ensure all people preparing returns understand what amounts to an error and how urgent correction should be.
- **Document retention**: keep all supporting records so corrections can be substantiated.
- **Communication with HMRC**: where unsure, disclose early—voluntary disclosure often leads to better outcomes.
## Example Scenario
Suppose a limited company computes its Corporation Tax return for 2026 and later discovers that certain deductible expenses were wrongly excluded, lowering its claim by £10,000. Under the new rules, the company must notify HMRC and amend its return. HMRC might issue a **customer correction notice** requiring this correction within a defined deadline. If the company fails to comply, they might face penalties and interest on the underpayment.
## What to Watch As the Law Develops
- Finish reading the **consultation document** and respond if stakeholder, before **7 September 2026**. ([gov.uk](https://www.gov.uk/government/publications/modernising-the-correction-of-errors?utm_source=openai))
- Observe final legislation for definition of “inaccuracy,” deadlines, materiality, and penalties.
- Check how HMRC will handle corrections spurred by third-party data or by HMRC itself.
## Conclusion
These proposed changes signal a shift toward **greater taxpayer responsibility**. Those who wait for HMRC to point out errors will face more risk and less flexibility. Proactive, accurate, and transparent reporting will become standard practice. For businesses and individuals alike, these reforms demand sharper record-keeping and careful submission of all documents to HMRC.