Legislation Day: New duty to correct tax return errors

On 13 July 2026, HMRC published draft legislation for inclusion in Finance Bill 2026-27, which aims to modernise how errors in tax returns and other documents are corrected.

The new legislation has two key elements.

First, it introduces an explicit – and positive – obligation on taxpayers to take reasonable steps to correct errors once they become aware of them.

Crucially, the failure to comply with this new duty means the inaccuracy is treated as deliberate for penalty purposes under Schedule 24 Finance Act 2007, significantly increasing potential penalty exposure. This positive obligation goes further than the current position on identifying and disclosing tax errors and will have a wide impact across commercial activities, for example M&A disclosure processes.

Second, the draft legislation gives HMRC a new power to issue a “Customer Correction Notice”, requiring the taxpayer to check their position and either correct the inaccuracy or explain why no correction is needed.

The draft legislation, which does not specify the effective date, will be subject to technical consultation until 7 September 2026.

What should I do?

Businesses and their advisers should consider the following steps.

• Review internal processes for identifying and correcting errors. The new obligation will require organisations to act promptly when errors come to light, and existing compliance frameworks should be assessed to determine whether they are sufficient to demonstrate that ”reasonable steps” have been taken.

• Be aware that the penalty consequences of inaction are severe. Failure to take reasonable steps to correct a known error will result in the inaccuracy being treated as deliberate, attracting penalties which are calculated as a higher percentage of the potential lost revenue (based on “deliberate” behaviour) rather than lower penalty rates for “careless” behaviour.

• Brief relevant stakeholders, including CFOs, tax committees and boards, on the proposed changes and the heightened penalty risk.

• Monitor the progress of the Finance Bill 2026-27 for the final enacted version of these provisions.

What else do I need to know about this change?

The measure applies to a wide range of tax documents, including income tax self-assessment and partnership returns, VAT returns, corporation tax returns and other filings.

The proposal has a clear legislative ancestor in the Requirement to Correct (RTC) introduced by Finance (No. 2) Act 2017, which required taxpayers with undeclared offshore tax liabilities to self-correct by 30 September 2018, with penalties of up to 200% for failure. The new duty extends a similar principle across the entire tax system.

The new duty represents a significant shift in HMRC’s approach to the boundary between “careless” and “deliberate” errors. However, it is unclear how the new rules will work in practice, including how the correction notice power will interact with existing enquiry and discovery assessment powers and how broadly the duty to correct will apply, in particular, whether “awareness” of an error will be limited to the taxpayer itself, or whether knowledge held by its advisers or by employees who have sight of relevant information but no direct responsibility for tax compliance could also trigger the obligation.

Further information

For further information on the correction of tax errors, please contact any of the members of Eversheds Sutherland’s tax disputes team set out below.