A client mentioned something in passing last month. The closing stock figure in the accounts I had just taken over "wasn't quite right", he said, in the tone people use when they think they left the oven on. Then he moved on to his VAT return.
I now knew something about a filed corporation tax return. What I do next has always been a professional conduct question with a soft edge on it. HMRC is about to put a statutory edge on it, and the sharp part is one word long.
TL;DR: HMRC's draft duty to correct is being reported as a new obligation. It is not. Section 118(6) TMA 1970 has required you to tell HMRC about an inaccuracy you later discover for years. The draft swaps a single word in that subsection, and the assessment window on a client who stays quiet moves from six years to twenty.
What did HMRC actually publish in July?
Two things, both still in draft. On 13 July 2026 HMRC published the policy paper "Modernising the correction of errors" with draft legislation for Finance Bill 2026/27. One limb obliges a taxpayer to correct an inaccuracy in a Schedule 24 Finance Act 2007 return on becoming aware of it. The other lets HMRC issue a Customer Correction Notice.
The consequence is the headline. Where a taxpayer becomes aware of an inaccuracy and does not take reasonable steps to correct it or notify HMRC, the inaccuracy "is treated as deliberate for the purposes of penalties and assessment time limits" (HMRC policy paper, 2026).
Nobody is under this duty today. The paper gives no date, saying only that it takes effect "on or after an appointed day in the future". Consultation closed on 7 September 2026 and the Bill is expected at the Autumn Budget on 28 October. Schedule 24 covers income tax, CGT, corporation tax, VAT, inheritance tax and SDLT, so when it lands it lands nearly everywhere.
Why has every briefing on this missed the real change?
Because they describe the obligation as new, and the obligation is not the new part. Section 118(6) of the Taxes Management Act 1970 already reads, in compressed form:
the person who provided the information discovers some time later that the information was inaccurate, and that person fails to take reasonable steps to inform [HMRC], any loss of tax brought about by the inaccuracy shall be treated ... as having been brought about carelessly by that person.
Discover, stay quiet, and the loss is already deemed careless, and has been for years (Taxes Management Act 1970 s118, 2026). The duty to speak up is not an invention of this draft.
What the draft does to it is five words of instruction: for "carelessly" substitute "deliberately" (draft legislation, 2026). That amendment is the proof: you cannot substitute a word into a provision that was not already there.
I have read four firms' briefings on this and none mentions section 118(6). That changes what you tell a client: not "a new rule is coming, start behaving differently", but "the rule you were already ignoring just got repriced".
What does one word actually cost your client?
It roughly doubles the penalty ceiling and more than triples the assessment window. Both bands already exist in Schedule 24; what changes is which one a known and ignored error falls into.
| Careless | Deliberate | |
|---|---|---|
| Maximum penalty (domestic) | 30% of lost revenue | 70% of lost revenue |
| Assessment window (income tax and CGT) | 6 years | 20 years |
| Statutory basis | Sch 24 para 4; s36(1) TMA | Sch 24 para 4; s36(1A) TMA |
Schedule 24 paragraph 4 sets the standard penalty at 30% of potential lost revenue for careless, 70% for deliberate but not concealed and 100% where concealed (Schedule 24 Finance Act 2007, 2026). Section 36 gives six years for a loss brought about carelessly and twenty where deliberately, against an ordinary four (Taxes Management Act 1970 s36, 2026).
Six years is survivable. I have had that conversation, written the disclosure and watched a client pay. Twenty years reaches back further than most of my clients have owned the business.
I have written before on where HMRC draws the line between careless, reckless and criminal, which turns on state of mind at filing. This turns on conduct after the error surfaces, a separate and costlier test.
Is there any protection if HMRC sends a correction notice?
Yes, and more than the early coverage suggested. The draft inserts a new paragraph 3D into Schedule 24 giving a real safe harbour: no careless penalty applies if the taxpayer has not had a correction notice in the preceding six years and takes reasonable steps to correct the inaccuracy before the notice's deadline. A first notice, answered on time, is free.
Errors HMRC finds after issuing a notice are also presumed careless rather than deliberate, unless the inaccuracy genuinely was deliberate or the taxpayer took reasonable care.
One thing not to assume: no default response period appears anywhere in the draft. The deadline is whatever the notice specifies, not the thirty days you are used to. And the duty only bites inside the existing windows for amending a return or making an assessment, so you are not expected to reopen everything.
What I am telling clients before the Budget
Fix the habit now, because it is the only thing that will be contemporaneous when it matters. When a client says something like my stock figure comment, I write it down the same day with the date and his actual words, then put the recommendation to him in writing rather than on a call.
That record is the whole defence. "Reasonable steps" is undefined in the draft, and so is when somebody "becomes aware", so the only evidence in three years will be what you wrote in the week it happened. I already go through the old accountant's files on a new client looking for this, and prior-year comparatives in Xero or QuickBooks are usually where the loose thread shows up.
The part of the draft I would push back on
The deeming does something unusual. Deliberate behaviour normally requires HMRC to show somebody knowingly gave inaccurate information. Under this draft an inaccuracy "that would in ordinary circumstances be neither careless nor deliberate, is deemed to be deliberate if the taxpayer does not comply with the duty to correct, regardless of the nature of the conduct" (Freshfields, 2026). A twenty-year window and a 70% penalty arrive without anyone proving intent.
ICAEW has asked HMRC to consider a de minimis threshold, so the cost of administering the requirement does not exceed the tax collected in each case (ICAEW, 2026). That seems right to me. Most errors I find are small, and most of the tax gap is careless rather than fraudulent anyway. Pricing a forgotten stock adjustment alongside what HMRC reserves for deliberate defaulters is a lot of machinery for a few hundred pounds.
Frequently Asked Questions
What is HMRC's new duty to correct an error in a tax return?
A draft obligation to take reasonable steps to correct an inaccuracy in a Schedule 24 Finance Act 2007 return once you become aware of it, or to notify HMRC if you cannot correct it directly. Ignore it and the inaccuracy is treated as deliberate for penalties and assessment time limits.
Am I under this duty now?
No. It is draft legislation for Finance Bill 2026/27 with no commencement date, taking effect "on or after an appointed day in the future". Consultation closed on 7 September 2026 and the Bill is expected at the Autumn Budget on 28 October. Section 118(6) TMA 1970 already deems a discovered and unreported inaccuracy careless, so current exposure is six years, not twenty.
What is a customer correction notice, and what happens if I ignore one?
A new HMRC power to require you to check a position and either correct the inaccuracy, make a disclosure, or confirm no correction is needed. Ignoring it means the inaccuracy is treated as deliberate. The deadline is set in the notice itself, and the draft specifies no default period, so do not assume thirty days.
Can a careless mistake really be treated as deliberate?
Under the draft, yes, but only on the basis of what you do after you find it. The mistake itself stays careless. Ignoring it once you know moves the inaccuracy into the deliberate band, taking the penalty ceiling from 30% to 70% and the window from six years to twenty. The duty applies only inside the existing time limits, so years already out of time stay out.
If you have taken on a client with figures you are unsure about, or found something in a prior year and are weighing up what to put in writing, get in touch. Happy to go through the file with you.