Households across the UK could receive HMRC letters imposing penalties of up to 200% under new draft rules published as part of the Finance Bill 2026/27. The legislation, introduced under Labour Party Prime Minister Andy Burnham, places a legal duty on taxpayers to correct any errors in returns or documents provided to HMRC once those errors have been discovered.
The measure also grants HMRC a new power to issue a Customer Correction Notice. This notice requires the taxpayer to review their position and either correct the inaccuracy or provide an explanation for why no correction is needed. According to Step.org, the professional body for tax advisers, the new duty "closely resembles the Requirement to Correct (RTC) duty introduced by the Finance (No. 2) Act 2017, which required taxpayers with undeclared offshore tax liabilities to self-correct by a fixed date, with penalties of up to 200 per cent."
How the new penalty rules would work
The proposed new powers have attracted criticism from law firms, particularly around the severity of penalties for non-compliance. Failure to comply with the new duty means the inaccuracy is treated as deliberate for penalty purposes under Schedule 24 of the Finance Act 2007. Law firm Eversheds Sutherland has warned that this "significantly increases potential penalty exposure," attracting penalties that are calculated as a higher percentage of the potential lost revenue based on deliberate behaviour rather than lower penalty rates for careless behaviour.
In practice, this means a taxpayer who fails to correct a mistake could face penalties at the same rate as someone who deliberately understated their tax liability, even if the original error was innocent. The step change in penalty exposure is one of the key concerns raised by tax professionals since the draft legislation was published.
Government defends the draft legislation
The government has defended the new rules, arguing they are necessary to modernise the tax system. A ministerial statement on the legislation said: "As announced at Budget 2025, the government is publishing draft legislation to modernise the correction of inaccuracies in returns or documents provided to HMRC. It introduces an explicit obligation on taxpayers to take reasonable action to correct errors once they are identified. It also gives HMRC a new power to issue a Customer Correction Notice, which requires the taxpayer to check their position, and either correct the inaccuracy or explain why no correction is needed."
The statement continued: "This will help resolve simple, common issues more quickly and proportionately and improve consistency and fairness by setting a clear expectation that customers self-correct errors."
Reaction from tax experts and next steps
Step.org noted that the new duty, whose commencement date is not yet specified, will extend a similar principle across the entire tax system. Previously, the Requirement to Correct applied only to offshore tax liabilities, but the new measure applies to all taxes handled by HMRC. This broad scope has raised concerns about the potential for HMRC to issue large numbers of Customer Correction Notices, placing an administrative burden on taxpayers and agents.
The government insists the changes will help resolve simple issues quickly and proportionately, improving consistency and fairness. However, tax law firms have pointed out that the increased penalty exposure for non-compliance could feel heavy-handed, especially for those who make innocent mistakes and fail to correct them in time.
What taxpayers should do now
For taxpayers, the key takeaway is the importance of self-review. The new duty makes it clear that HMRC expects errors to be corrected promptly, rather than waiting for HMRC to detect them. This shifts the burden of ensuring accuracy onto the taxpayer, with severe financial consequences for those who fail to act.
Tax advisers recommend keeping detailed records and responding immediately to any HMRC correspondence. If a Customer Correction Notice is received, the taxpayer must either correct the error or provide a valid explanation. Ignoring the notice could result in penalties being calculated as deliberate, potentially up to 200% of the tax owed, even if the underlying error was not deliberate. With the Finance Bill 2026/27 still at draft stage, the exact timing of when the new duty will come into force remains unclear, but the government has signalled that it expects customers to take "reasonable action" to self-correct once the legislation is enacted.
