HMRC’s proposed new duty to correct and the rise of tax governance

On 13 July 2026, HMRC published draft legislation and an accompanying policy paper introducing a new statutory obligation for taxpayers to correct inaccuracies in tax returns and other documents once they become aware of them. Alongside this, HMRC would gain the power to issue a "Customer Correction Notice", requiring taxpayers either to correct a perceived error or explain why no correction is required.

The measure follows a consultation published in autumn 2024 on new approaches to improving compliance, a summary of responses in spring 2025 and a commitment in the Transformation Roadmap published in summer 2025 to develop a customer correction power.

At first glance, the proposal reflects an expectation that many taxpayers would already recognise: to correct an error once identified. The significance of the draft legislation lies in clarifying the consequences where known inaccuracies are not addressed.

In particular, where a taxpayer becomes aware of an inaccuracy and fails to take reasonable steps to correct it or notify HMRC, the legislation would amend section 118(6) of the Taxes Management Act 1970 and related provisions so that the behaviour is treated as deliberate for penalty and assessment purposes. Under the current law, a failure to correct an error is not automatically deemed deliberate. The proposed change therefore represents a shift in risk exposure: deliberate behaviour attracts higher penalties and extends the assessment window to twenty years.

The proposal reflects HMRC's continued focus on tax governance, documentation and accountability, with those themes becoming more explicitly embedded in the statutory framework.

More than a compliance change

The proposal should not be viewed in isolation.

Over recent years HMRC has increasingly emphasised the quality of tax processes rather than focusing solely on technical outcomes. Initiatives such as Business Risk Review+ (the framework through which HMRC assesses the tax risk profile of large businesses), the Senior Accounting Officer regime and Guidelines for Compliance 13 (GfC13, which sets out HMRC's expectations around how businesses handle legal uncertainty in their tax affairs) all point in the same direction: taxpayers are expected not only to reach an appropriate filing position but also to demonstrate how they arrived there. The proposed extension of the uncertain tax treatment regime for large businesses is a further example of HMRC seeking to address tax uncertainty and ensure compliance. As noted in recent analysis on tax governance, HMRC increasingly places emphasis on understanding the governance and decision-making processes that underpin a tax position, including how uncertainty was identified, assessed and documented.

The new duty to correct continues that trend.

The underlying message is simple - identifying an error creates a governance obligation. Once awareness exists, the taxpayer must have a process for assessing the issue, determining whether a correction is required and ensuring the matter is resolved. Importantly, the draft legislation provides that the obligation to take corrective action applies only where the taxpayer or HMRC remains within existing statutory time limits for amending returns or making assessments, meaning the duty does not create an open-ended retrospective exposure.

The connection with PCRT

The proposal also has important implications for professional advisers and the Professional Conduct in Relation to Taxation (PCRT) framework.

PCRT already requires members of the professional bodies to advise clients of errors or omissions and to recommend appropriate corrective action. Advisers who become aware of inaccuracies cannot simply ignore the issue. They must explain the implications to the client and encourage correction.

In many respects, HMRC's proposed legislation appears to mirror and reinforce principles that already exist within PCRT. What has historically been a professional and ethical obligation may now become supported by a more explicit statutory framework.

That alignment creates an interesting change in dynamics. Historically, discussions around correcting historic errors could sometimes be framed as a matter of professional conduct. The proposed legislation introduces direct statutory consequences for taxpayers who fail to act once an inaccuracy is known. As a result, conversations around error correction may increasingly become risk management discussions rather than purely technical tax discussions.

For advisers, this is likely to place even greater emphasis on documenting advice, recording recommendations and clearly evidencing client decisions where corrections are not pursued.

Where clarity will be needed

Despite the policy objective being relatively straightforward, the draft legislation raises a number of practical questions.

The most significant may be: when does a taxpayer become "aware" of an inaccuracy?

Errors are not always obvious. Tax often involves judgement, interpretation and uncertainty. Different advisers can reach different conclusions on the same set of facts. HMRC acknowledges in GfC13 that uncertainty can exist and that taxpayers may sometimes adopt positions that differ from HMRC's interpretation of the law.

In that context, determining the point at which a taxpayer has become aware of an inaccuracy may not always be straightforward.

Similarly, what constitutes "reasonable steps" to secure a correction? Is commissioning professional advice sufficient? Must a correction be submitted immediately? What happens where there is genuine uncertainty or ongoing disagreement regarding the correct treatment? The draft legislation offers some indication of the intended approach. Under proposed new paragraph 3D of Schedule 24 to the Finance Act 2007, where an inaccuracy is the result of careless behaviour and is subject to a Customer Correction Notice, a taxpayer will not be liable to a careless inaccuracy penalty provided that: (i) the taxpayer has not previously received a Customer Correction Notice within the preceding six years; and (ii) the taxpayer has taken reasonable steps to correct the error. This suggests a degree of proportionality in the framework, although further guidance during the consultation process may provide clarity in understanding how "reasonable steps" will operate in practice.

These questions are likely to feature prominently during the consultation process.

Why boards should care

Many organisations continue to view tax risk as a matter for the finance or tax team. However, HMRC's proposal highlights why tax governance increasingly belongs on the board agenda.

The consequences of a governance failure can extend far beyond a technical tax adjustment. Under the proposed legislation, failing to act after becoming aware of an issue could expose the business to deliberate penalties and the extended twenty-year assessment period under section 36 of the Taxes Management Act 1970, rather than the standard four or six-year windows.

More fundamentally, the proposal reinforces the point that HMRC is assessing not only the correctness of tax outcomes but also the robustness of decision-making processes.

Boards routinely oversee risks relating to financial reporting, cyber security, regulatory compliance and ESG. Tax risk should be viewed through the same lens. The key question is no longer simply whether the tax position is technically correct. It is whether the organisation has appropriate systems to identify uncertainty, escalate issues, obtain advice, make informed decisions and maintain evidence of those decisions.

A business that cannot demonstrate those processes may find itself exposed even where the underlying technical analysis is relatively strong.

It is also worth noting that the proposed duty is not limited to large businesses or corporate taxpayers. The draft legislation applies to all taxpayers who submit tax returns or other documents to HMRC. Although the accompanying policy paper refers to tax advisers who provide professional tax advice or services, the statutory duty to correct is imposed on the taxpayer rather than the adviser. In practice, however, advisers who become aware of an error will need to notify the taxpayer and ensure the taxpayer understands the obligation to correct the inaccuracy. The breadth of the measure underscores the need for governance frameworks at every level, from multinational groups to individual taxpayers and their advisers.

Moving from compliance to governance

Perhaps the most important lesson from HMRC's proposal is that tax compliance and tax governance are becoming increasingly intertwined.

The organisations best placed to respond will not necessarily be those with the most sophisticated technical tax teams. They will be those with clear governance frameworks, documented decision-making processes and well-defined mechanisms for identifying and managing tax risk as issues arise.

In that sense, the proposed duty to correct is about far more than correcting mistakes. It reflects a broader shift towards proactive tax risk management and greater organisational accountability.

For boards, CFOs and heads of tax, the proposal reinforces the importance of good tax governance as an essential part of effective tax compliance.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2026. For more information see our terms & conditions.