Modernising the Correction of Errors: What HMRC’s New Proposal Means for Taxpayers and Employers

On 13 July 2026, HMRC published draft proposals to modernise the correction of tax errors through the introduction of a new general taxpayer obligation to correct inaccuracies and a new statutory compliance tool called the Customer Correction Notice (CCN). The proposals represent a significant development in HMRC's compliance approach.

What is HMRC proposing?

The central feature of the proposal is a new legal obligation requiring taxpayers to take action when they become aware of an error in a return or other document submitted to HMRC.

Where an inaccuracy is identified, the taxpayer will be required to:

• correct the error if a correction mechanism exists, or
• notify HMRC where a direct correction cannot be made.

The obligation would apply only while the relevant statutory time limits remain open for amending returns or making assessments.

The policy objective is to improve compliance by making clear that taxpayers must act once they become aware of errors, with the hope that this would free up more HMRC time to conduct compliance reviews.

A significant step beyond nudge letters

Many tax professionals will immediately recognise similarities between the proposed Customer Correction Notice and HMRC's existing nudge letter campaigns.

Currently, HMRC regularly issues nudge letters where it believes a taxpayer may have made an error or where a particular risk exists. These letters encourage taxpayers to review their affairs and make voluntary disclosures. However, they are generally informal compliance interventions with no specific statutory requirement to respond.

The proposed Customer Correction Notice takes this concept significantly further.

Under the new power, HMRC would be able to issue a formal notice requiring a taxpayer to:

• review their position;
• correct an inaccuracy;
• make a disclosure; or
• explain why no correction is required.

In effect, the CCN appears to be a statutory version of the nudge letter, backed by legislation and linked directly to the penalty framework. Rather than simply encouraging a review, HMRC would be able to require one.

What happens if a taxpayer ignores an error?

Perhaps the most significant aspect of the proposal is its interaction with penalties.

The draft legislation would amend existing provisions so that where a taxpayer becomes aware of an inaccuracy and fails to take reasonable steps to correct or notify HMRC, the behaviour will be treated as deliberate for penalty and assessment time limit purposes.

This is an important shift.

Under the current Schedule 24 penalty regime, HMRC distinguishes between:

• reasonable care;
• careless behaviour; and

• deliberate behaviour.

Deliberate behaviour attracts the most severe penalties and allows HMRC access to longer assessment time limits. The proposal therefore moves the focus away from merely how the original error arose and towards what the taxpayer does after discovering it.

In practical terms, a taxpayer who genuinely makes an innocent mistake but subsequently fails to take action after identifying it could find themselves facing consequences normally associated with deliberate non-compliance.

How would the Customer Correction Notice affect penalties?

The proposal also introduces a more nuanced penalty treatment where a Customer Correction Notice has been issued.

If a taxpayer receives their first Customer Correction Notice within a six-year period and takes reasonable steps to secure a correction, HMRC proposes that inaccuracy penalties should apply only where errors are deliberate.

Conversely, if HMRC subsequently discovers additional errors after reviewing the correction (or the failure to correct), those errors would be presumed to be careless unless:

• HMRC can demonstrate deliberate behaviour; or

• the taxpayer can demonstrate that reasonable care was taken.

This creates both a carrot and a stick: taxpayers are encouraged to engage constructively with a CCN, but a failure to do so may leave them in a more difficult position if errors are later identified.

What is covered by Schedule 24?

The proposals apply to returns and documents covered by Schedule 24 Finance Act 2007, which is the UK's principal inaccuracy penalty regime, covering a wide range of tax documents, including:

• Self Assessment tax returns;
• trust returns;
• partnership returns;
• Corporation Tax returns;
• VAT returns;
• PAYE returns;
• Construction Industry Scheme returns;
• claims for tax reliefs and deductions;
• accounts submitted in support of tax computations; and

• any document likely to be relied upon by HMRC in determining tax liabilities, repayments or penalties.

Schedule 24 currently provides penalties for:

1. inaccurate returns or documents resulting in an understatement of tax, overstatement of losses or excessive repayment claims;
2. deliberate provision of false information to another person with the intention of causing an inaccurate filing; and

1. failures to notify HMRC of certain under-assessments.

The significance of HMRC's proposal is that the new correction obligation would sit on top of this already extensive penalty framework.

Implications for employers and tax/payroll professionals

For employers, tax and payroll teams, the proposal deserves close attention.

PAYE returns and associated reporting already fall within the Schedule 24 regime. As a result, employment tax errors that come to light after submission could be subject to the new obligation to correct.

Areas that could potentially be affected include:

• PAYE reporting errors;
• benefits reporting;
• expenses and benefits compliance;
• termination payment treatment;
• PAYE Settlement Agreements;
• employment status and off-payroll working determinations; and

• other employment tax disclosures made to HMRC. ,

Many employers already operate processes for identifying and correcting errors. However, the proposal creates a clearer expectation that once an error is known about, action must be taken. Failure to do so may result in HMRC being able to argue that the behaviour should be treated as deliberate.

Final thoughts

HMRC presents this measure as a modernisation of the tax administration framework and a way of encouraging self-correction rather than resource-intensive compliance interventions. From a policy perspective, the proposal seeks to make explicit a principle many would regard as common sense: if a taxpayer knows something is wrong, they should put it right.

However, the proposal goes further than simply clarifying expectations. By linking the obligation to the Schedule 24 penalty framework and introducing the Customer Correction Notice, HMRC is effectively creating a statutory mechanism that formalises and strengthens the current nudge-letter approach.