Does this apply to me right now?

Not yet. HMRC published the draft legislation on 13 July 2026 as part of the Finance Bill 2026-27 package, and the impact note says the measure takes effect ‘on or after an appointed day in the future’. No date has been named. The technical consultation closes on 7 September 2026, so the wording can still change before anything is enacted. What that means in practice is that you have a window: errors you find and correct before the rules commence are dealt with under the current regime, where failing to correct is not itself treated as deliberate behaviour. That window is the reason to look now rather than later.

What counts as becoming aware of an error?

The draft says the duty bites when you become aware of the inaccuracy at some later time, including where a correction notice tells you. It does not define awareness any further, and that is the biggest gap in the drafting. A bookkeeper flagging an odd entry, a due diligence report during a sale, an accountant’s file note during a software migration — all of those arguably make you aware. In a dispute, HMRC would be arguing about what you knew and when, potentially years after your record-keeping obligation ended. Keep a dated note of anything you review and the conclusion you reached.

If I find an old error, am I better off saying nothing?

No, and the arithmetic is not close. Correcting an error yourself before HMRC asks is an unprompted disclosure, and a careless-inaccuracy penalty can be reduced to nil where you tell HMRC, help work out the tax due and give access to the figures. Sitting on it risks the opposite end of the scale: on the worked example above, a £4,830 underpayment carries no penalty if corrected voluntarily, and between £966 and £3,381 if the failure to correct is treated as deliberate — plus a twenty-year assessment window instead of six. The tax and the interest are payable either way.

What should I do if a Customer Correction Notice arrives?

Respond before the deadline on the notice, every time. Under the draft, a first notice in any six-year period carries real protection: if you take reasonable steps to correct the inaccuracy by the deadline, no careless-inaccuracy penalty applies. You can also reply saying no correction is needed and explaining why — that is a valid response, not a confrontation. Ignoring it is the expensive option, because any inaccuracy HMRC then finds is presumed careless unless you satisfy HMRC or the tribunal that you took reasonable care, and you have burned the one-notice protection for six years.

HMRC wants a legal duty to correct old errors

Reacting to: Think your tax affairs are settled? Think again. (City A.M.) →

Writing in City A.M. this morning, Fiona Fernie of Blick Rothenberg points at a piece of draft legislation that has been sitting quietly in the Finance Bill pipeline since July, and which almost nobody outside the tax profession has noticed. It is called Modernising the correction of errors, HMRC published it on 13 July 2026, and responses to the technical consultation are due by 7 September 2026. Her verdict is that HMRC's objective is sensible but the execution is wrong. Having read the draft clauses, I agree with her — and I think the practical consequence for owner-managed businesses is bigger than the "negligible impact" HMRC's own impact note claims.

Here is my read in one line. This is not a change to what counts as an error. It is a change to what your silence counts as. Today, if you file a return carelessly, HMRC has to prove carelessness to get past the four-year assessment window. Under this draft, if you become aware of an error and do not take reasonable steps to fix it, the error is treated as deliberate — automatically, by statute. That single word reclassification moves you from a six-year exposure to a twenty-year one, and from a penalty band that starts at zero to one that starts at 20%. Nothing about your original mistake has to change for that to happen. Only your response to finding it.

What the draft actually does

There are two limbs, and they are worth separating because they behave very differently.

Limb one is a general duty to correct. A new Schedule 24A to the Finance Act 2007 says that where you have given HMRC a document, it contains an inaccuracy, you later become aware of that inaccuracy, and it can still be corrected — you must take reasonable steps to correct it, or tell HMRC if you cannot correct it directly. The sting is in sub-paragraph (4): if you do not comply, "the inaccuracy is to be treated as deliberate on P's part". The draft also amends section 118(6) of the Taxes Management Act 1970, swapping "carelessly" for "deliberately".

Limb two is a new power to issue what HMRC calls a Customer Correction Notice. HMRC can send one wherever they "have reason to suspect" a document contains an inaccuracy — a lower bar than opening a formal enquiry. The notice specifies the suspected error and gives you a deadline to either correct it or explain why there is nothing to correct. Miss the deadline and the inaccuracy is presumed careless, unless it was deliberate, or unless you can satisfy HMRC or the tribunal that you took reasonable care in the first place.

Buried in limb two is something genuinely useful that will get lost in the noise. A new paragraph 3D removes the careless-inaccuracy penalty entirely where you have not had a correction notice in the previous six years and you take reasonable steps to correct by the deadline in the notice. In other words, your first notice in any six-year window is, in effect, a free correction. That is a real incentive, and it is the strongest argument for opening the envelope rather than filing it.

What it costs: a worked example

Illustrative figures, but the rates are real. Sarah is a self-employed consultant and a higher-rate taxpayer. In August 2026 she is pulling old paperwork together for a mortgage application and finds that £11,500 of 2021–22 income paid into a second business account never made it into her bookkeeping, so it never made it onto her return.

Income tax at 40% on £11,500: £4,600
Class 4 National Insurance at 2% above the upper profits limit: £230
Additional tax due — what HMRC calls potential lost revenue: £4,830

That tax was due on 31 January 2023, so roughly three years and seven months of late payment interest has accrued. HMRC's late payment rate is base rate plus four percentage points and is currently 7.75%, set on 9 January 2026; across that whole window the published rate moved between 6.00% and 8.50%. At an average of about 7.5%, the interest comes to roughly £1,300. That is payable whatever she does next.

The penalty is where her decision matters. Penalties for inaccuracies run at 0% to 30% of the extra tax for a careless error, 20% to 70% for a deliberate one, and 30% to 100% where it is deliberate and concealed. Reductions depend on telling HMRC, helping them work out the tax, and giving access to the figures.

She corrects it voluntarily. Unprompted disclosure of a careless error, with full co-operation, can reduce the penalty to nil. Cost: £4,830 tax + £1,300 interest = about £6,130.
She decides HMRC is out of time and says nothing. Under the new rules that failure is deliberate by statute. Penalty band 20%–70% of £4,830 = £966 to £3,381. Cost: £7,100 to £9,500 — and the assessment window stretches from six years to twenty, so 2021–22 stays live until 2042 rather than closing in 2028.

A £4,830 mistake, and up to £3,381 of the outcome is decided purely by what she does in the fortnight after she finds it.

The second scenario: a notice lands

Now a limited company that has under-declared £6,000 of VAT across a period, and receives a Customer Correction Notice eighteen months later.

Responds by the deadline, no notice in the previous six years. Paragraph 3D applies: no careless-inaccuracy penalty. Cost is £6,000 plus about £700 interest at 7.75%.
Ignores it. The inaccuracy is presumed careless — up to 30%, so £1,800. If HMRC argues the notice itself made the company aware and it still did nothing, limb one turns that into deliberate: 20%–70%, or £1,200 to £4,200. And the six-year protection is spent.

Opening the letter and replying on time is worth up to £4,200 here. Replying "we have checked and there is no error" is a valid response under the draft, so there is no version of this where ignoring it wins.

Who this actually bites

Not the deliberately non-compliant — they are already inside the twenty-year window. It bites people who look. Anyone migrating from spreadsheets to cloud bookkeeping and reconciling old years in the process. Sole traders and landlords rebuilding records to get onto Making Tax Digital for Income Tax. Owners going through due diligence on a sale, where a buyer's advisers will comb the last six years line by line. Executors reviewing a deceased person's affairs. In every one of those cases the review is the thing that triggers awareness, and awareness is what starts the clock.

Where I think HMRC has this wrong

Fernie's central objection is the reversal of the burden of proof, and she is right. HMRC currently has to establish careless or deliberate behaviour. Under limb two, non-response flips that: you have to satisfy HMRC or a tribunal that you took reasonable care. Do that far enough back and you are being asked to evidence your own diligence long after you were legally required to keep the records — five years past the filing deadline for the self-employed, six years from the end of the accounting period for companies.

My own objection is narrower and, I think, more damaging in practice: there is no finite time limit on the duty to correct, and no definition of what "becoming aware" means. A clean-up exercise you undertake voluntarily becomes a source of legal risk. The rational response to a rule like that is to stop looking — which is the exact opposite of what a compliance measure should produce. HMRC's stated objective is to free up compliance resource. A rule that quietly discourages self-review will cost them more of it, not less.

What is still uncertain, and when we will know

Three things are genuinely open. First, the commencement date: the impact note says the measure takes effect "on or after an appointed day in the future" and no day has been appointed. Second, the wording — this is technical consultation, closing 7 September 2026, and the safeguards Fernie is asking for are exactly what that process exists to add. Third, the fiscal scale: the Exchequer impact table is published entirely blank, to be costed by the OBR at a future fiscal event. The only firm number HMRC has given is £5 million to change its own IT systems. Expect the shape of this to firm up at the autumn Budget.

Three things worth doing this month

Use the window. Nothing has commenced. Any error you find and fix now is dealt with under the current rules, where inaction is not automatically deliberate. If you have been putting off a look at an old year, this is the cheapest moment it will ever be. You can amend a Self Assessment return within 12 months of the filing deadline online; older years go in writing. VAT errors have their own route — check how to report them before adjusting a return.
Fix your record retention before you need it. The minimum is five years after the 31 January deadline if you are self-employed, six years from the end of the accounting period for a limited company. Under a twenty-year deliberate window, minimum compliance is not the same as being able to defend yourself. Digital copies cost nothing to keep.
Respond to the consultation if this affects you. Responses go to tarcompliance@hmrc.gov.uk by 7 September 2026. Trade bodies will file, but HMRC counts submissions from actual businesses differently from submissions from advisers.

None of this is a reason to panic, and it is not yet law. It is a reason to stop treating "I'll look at that old year sometime" as a free option, because the draft removes exactly that. If you want a second pair of eyes on a period you have never been comfortable about, that is what our tax planning work and our Virtual Finance Team are for — and if the underlying issue is that the records were never clean in the first place, start with bookkeeping. We have also written up what to do when an HMRC letter lands and the real cost of late VAT returns, both of which cover the same instinct this legislation is aimed at.

HMRC wants a legal duty to correct old errors. Read the small print