Introduction: Why the Customer Correction Notice Matters to Americans in Britain
A customer correction notice is a new HMRC power, confirmed in the Budget documents updated on 28 October 2026, that will let HMRC write to you about a suspected error in a return you have already filed and require you to correct it or explain why it is right. It arrives alongside something more important: a statutory duty on every taxpayer to correct any error they become aware of. Both measures take effect on 1 April 2028, according to HMRC's policy paper on modernising the correction of errors.
Most commentary so far comes from City law firms writing for corporate tax departments. Those notes run to a few hundred words, they focus on boards and governance, and several still describe the start date as unannounced. None of them addresses the group we think is most exposed: US citizens, green card holders and dual nationals who live in Britain and are, right now, catching up on missed US tax returns. Our reasoning is simple. An IRS catch-up forces a full forensic rebuild of your income, accounts and investments. That rebuild routinely uncovers mistakes on the UK side as well. Under the new rules, the moment you learn of those UK mistakes, a clock starts ticking, and leaving them alone turns an innocent error into a deliberate one.
This guide explains how the customer correction notice and the duty to correct work, what changes on 1 April 2028, and why the 18 months before that date are a window of opportunity for wealthy Americans in Britain. We also walk through a worked case study with real numbers, a step-by-step correction process we use with clients, and the US consequences of fixing a UK return, which can actually put money back in your pocket.
What the Customer Correction Notice Is and Where It Comes From
The Customer Correction Notice in the Draft Legislation
The draft legislation published on 13 July 2026 inserts a new Schedule 24A into the Finance Act 2007. Part 2 of that schedule creates the customer correction notice. HMRC may issue one where you have given it a document listed in the penalty table of Schedule 24, where HMRC has reason to suspect the document contains an inaccuracy that understates your tax, and where that inaccuracy can still be corrected by assessment or otherwise.
The customer correction notice must specify the inaccuracy, or the kind of inaccuracy, that HMRC suspects. It then sets a deadline. Before that deadline, you must either take reasonable steps to correct the error or explain why the document does not contain it. In practice, therefore, a customer correction notice is a targeted letter rather than a full enquiry. HMRC does not need to open a formal investigation under section 9A of the Taxes Management Act 1970; instead, it points at a suspected problem and puts the burden on you to respond.
How a Customer Correction Notice Differs From a Nudge Letter or an Enquiry
HMRC already sends "one to many" nudge letters, often prompted by data it receives from overseas tax authorities. Those letters are informal, and ignoring one carries no direct statutory consequence. By contrast, a customer correction notice has legal teeth. If you fail to comply with a customer correction notice, the draft provides that the inaccuracy is presumed careless for penalty purposes unless it was in fact deliberate or you can satisfy HMRC, or a tribunal, that you took reasonable care.
Equally, a customer correction notice is lighter than an enquiry. An enquiry lets HMRC examine your whole return and demand documents; a customer correction notice is confined to the specified inaccuracy or kind of inaccuracy. For an American whose UK return is otherwise sound but who, for example, left US brokerage dividends off the foreign pages, the customer correction notice is the more likely tool. We expect HMRC to use it heavily where its third-party data, including information exchanged with the IRS, does not match what you declared.
The New Duty to Correct: The Bigger Change Behind the Customer Correction Notice
What "Becoming Aware" Means
Although the customer correction notice attracts the headlines, Part 1 of Schedule 24A is the provision that should worry sophisticated taxpayers most. It applies if you gave HMRC a return or similar document, the document contains an inaccuracy that understates tax, you become aware of the inaccuracy at some later time, and the error can still be corrected. In that case you must take reasonable steps to secure its correction. Those steps are to correct it yourself where you can, or otherwise to inform HMRC.
The draft does not define "aware". Commentators have rightly flagged this as the most important open question. However, for a client in the middle of a US catch-up, the practical answer is uncomfortable. When your US preparer reconciles your brokerage statements, payslips and bank records, they will often tell you in writing that something was missed in the UK too. Once you have read that email, it will be very hard to argue you were unaware. Notably, the draft also states that awareness can arise "by virtue of a customer correction notice", so receiving one fixes the awareness date beyond doubt.
Why an Uncorrected Error Becomes Deliberate
The consequence of ignoring the duty is severe. If you do not take reasonable steps, the inaccuracy "is to be treated as deliberate" for the purposes of the penalty regime in Schedule 24 to the Finance Act 2007. In addition, the draft amends section 118(6) of the Taxes Management Act 1970 so that a loss of tax you discover and fail to report is treated as brought about deliberately rather than carelessly.
That amendment matters because the time HMRC has to assess you depends on behaviour. Under section 36 of the Taxes Management Act 1970, a careless loss of tax can be assessed for six years after the end of the tax year, while a deliberate loss can be assessed for 20 years. Consequently, an error that would have dropped out of time in 2028 can stay open until the 2040s simply because you knew about it and did nothing.
The Change From Today's Rules
Today, paragraph 3(2) of Schedule 24 already says that an error you discover later and fail to report is treated as careless. The draft deletes that sub-paragraph and replaces it with the new deliberate treatment. In other words, the behaviour category for exactly the same inaction jumps from careless to deliberate on 1 April 2028. That single change explains why we are telling clients with known UK errors to act before that date rather than after it.
Penalties and Time Limits Under the Customer Correction Notice Regime
Schedule 24 Penalty Ranges
Penalties under Schedule 24 are a percentage of the potential lost revenue, which broadly means the extra tax due. For a careless error, the maximum is 30%, and an unprompted disclosure can reduce it to nil. For a deliberate but not concealed error, the range is 20% to 70% where you disclose unprompted, and 35% to 70% where the disclosure is prompted. For a deliberate and concealed error, the range rises to between 30% and 100%. A response to a customer correction notice will almost certainly count as prompted, because HMRC raised the issue first.
Offshore Matters and Territory Categories
Errors involving income or gains from outside the UK are "offshore matters", and they are prime customer correction notice territory because HMRC receives overseas account data automatically. HMRC places overseas territories into categories, and the penalty percentages are multiplied for the higher categories. HMRC's Compliance Handbook at CH116400 explains that the correct list depends on the date of the inaccuracy. The United States has been listed in Category 1, so for most errors on US accounts the standard percentages apply. However, if your structure runs through a Category 2 or 3 territory, the maximum can rise to 150% or 200%.
Time limits are also longer offshore. Under section 36A of the Taxes Management Act 1970, HMRC generally has 12 years to assess a non-deliberate loss of income tax or Capital Gains Tax involving an offshore matter. Therefore, an American with US-source errors already faces a long tail. The new regime simply extends that tail to 20 years for anyone who knew and stayed silent.
The Six-Year Safe Harbour for a First Notice
The draft also adds a carrot. A new paragraph 3D of Schedule 24 removes the penalty for a careless inaccuracy if you had not received a customer correction notice in the previous six years and you correct the error by the deadline in the notice. Put simply, your first notice in six years can be cleared without a careless penalty, provided you respond properly and on time. Nonetheless, the safe harbour does not cover deliberate errors. If you knew about the error before the customer correction notice arrived and did nothing, it may already be deliberate, and the safe harbour will not help you.
Why US Catch-Up Filers Face the Greatest Customer Correction Notice Risk
The US Rebuild Exposes UK Errors
When we prepare missed US returns for a client in Britain, we rebuild every year from source. We gather UK payslips and P60s, Self Assessment returns, US and UK brokerage statements, bank interest certificates and share plan records. We then convert everything into dollars and match it against IRS transcripts. That exercise is designed to fix the US side. Yet it inevitably tests the UK return too, because the same income should appear on both.
Many clients come to us after years of filing UK returns diligently while ignoring the US side, often because they are accidental Americans or long-settled dual nationals. Their UK returns were usually prepared by a UK-only adviser who never saw the US brokerage account. Therefore, once the US numbers are assembled, the gaps on the UK side become obvious.
The Errors We See Most Often
The single most common UK error among Americans in Britain involves US-domiciled funds and ETFs. Most are not UK reporting funds, so a gain on sale is an offshore income gain taxed at income tax rates of up to 45%, not a capital gain at 18% or 24%. You can check a fund's status on HMRC's list of reporting funds. Clients who reported those gains on the capital gains pages have understated their tax, sometimes by tens of thousands of pounds.
Other recurring errors include US dividends and interest left off the foreign income pages, restricted stock unit income sourced incorrectly between UK and US workdays, rental income from a US property omitted entirely, and claims to the four-year foreign income and gains regime made by people who had been UK resident within the previous ten years. Individually, each looks minor. Collectively, they are exactly the kind of mismatch HMRC's exchanged data will flag, and exactly the kind of error that a customer correction notice will target.
Your Form 14653 Narrative Is a Dated Record of Awareness
There is a further subtlety that no other guide we have read mentions. US catch-up filers who use the IRS Streamlined Filing Compliance Procedures sign a non-wilful certification on Form 14653, with a narrative explaining when and how they discovered their obligations. That narrative is a signed, dated account of what you learned and when. If the same review revealed UK errors, the date in your US narrative is strong evidence of when your UK duty to correct began. Consistency between the two stories is essential. A client who tells the IRS that they discovered everything in March 2027 but corrects nothing with HMRC until 2029 has created an awkward paper trail.
The US Side: How Correcting a UK Return Changes Your US Tax
Foreign Tax Redeterminations Under Section 905(c)
Here is the good news. When you pay additional UK tax after a correction, that tax is usually creditable against US tax on the same income. Under section 905(c) of the Internal Revenue Code, a change in the foreign tax you paid for an earlier year is a foreign tax redetermination. The regulations at Treasury Regulation 1.905-4 then require you to reflect the change by amending the affected US returns and recomputing the credit on Form 1116.
Importantly, the deadline for claiming a refund based on extra foreign tax is generous. Section 6511(d)(3) allows ten years from the original due date of the return for the year in which the foreign tax accrued. Therefore, a UK correction made in 2027 can still support a US refund claim for years as far back as 2017 or 2018, provided the extra UK tax genuinely relates to income the US also taxed.
Sequencing a UK Correction and a US Catch-Up
This is where timing becomes valuable. If you correct the UK return before your US catch-up returns are filed, those US returns can claim the right foreign tax credit from day one. If you file the US returns first, you will usually need a second round of amended returns once the UK tax changes, which costs more in fees and invites questions. Accordingly, our standard practice is to run both reviews together, settle the UK figures, and then finalise the US returns using the corrected UK liabilities. Our guide to amending a US expat return with Form 1040-X covers the US mechanics where the US returns have already gone in.
Case Study: A US Citizen Banker in London Before and After 1 April 2028
The Facts
Consider Michael, an illustrative US citizen who has lived in London since 2016 and works as a managing director at an investment bank. He has filed UK Self Assessment returns every year through a UK accountant. However, he never filed US returns after moving. In spring 2027 he engages us to bring his US position up to date.
During the rebuild we find two problems in his UK returns. First, in 2023-24 he sold US-domiciled ETFs held in a US brokerage account for a gain of $210,000, roughly £166,000. None of the funds was on HMRC's reporting funds list. His accountant reported the gain as a capital gain at 20%, the higher rate for that year, giving UK tax of £33,200. As an offshore income gain taxed at 45%, the correct tax was £74,700. The shortfall is £41,500.
Second, in 2021-22 and 2022-23 he received £18,000 a year of dividends in the same US account, which were never reported in the UK. At the additional dividend rate, which was 38.1% in 2021-22 and 39.35% in 2022-23, the UK tax is £6,858 and £7,083 respectively. After credit for 15% US withholding of £2,700 a year under the treaty, the net shortfall is £4,158 and £4,383, or £8,541 for both years. Michael's total UK understatement is therefore £50,041, before interest.
Michael Corrects in 2027
If Michael makes an unprompted disclosure in 2027, for instance through HMRC's Worldwide Disclosure Facility, the errors are currently treated as careless at worst, because paragraph 3(2) of Schedule 24 still applies. An unprompted careless disclosure can carry a penalty as low as nil, and with a full and well-documented disclosure we would expect a low single-digit percentage at most. He pays £50,041 of tax plus late payment interest.
On the US side, the extra £41,500 of UK tax on the ETF gain is creditable against US tax on the same gain in 2023. Because we correct the UK position before filing his US returns, his 2023 Form 1116 claims the full UK tax from the start. As a result, the additional UK tax eliminates most of the US tax he would otherwise have paid on that gain under the catch-up. The net cost of doing the right thing in both countries is far lower than the headline UK figure.
Michael Waits Until After 1 April 2028
Now suppose Michael reads our email in 2027, decides to "deal with it later", and receives a customer correction notice in 2029 when HMRC matches US data to his returns. Exactly how pre-commencement awareness will be treated depends on transitional rules not yet published. However, the prudent assumption is that an error he still knows about on 1 April 2028 is one he has become aware of and failed to correct. On that basis the error is deliberate, and his disclosure is prompted.
The penalty range for a prompted deliberate error is 35% to 70% of the potential lost revenue. On £50,041, that is between £17,514 and £35,029. In addition, the 2021-22 dividend error, which would otherwise fall under the 12-year offshore limit, stays open for 20 years. The safe harbour in paragraph 3D does not help, because it applies only to careless errors. Put plainly, delay could cost Michael up to £35,029 in penalties alone, together with the reputational risk that HMRC's deliberate defaulter rules may apply where the tax at stake exceeds the publication threshold.
A Step-by-Step Correction Process for Americans in Britain
Over many catch-up engagements we have settled on a sequence that keeps both tax authorities aligned. Step one is to define the review period. On the UK side, look back at least 12 years for offshore matters; on the US side, cover the years your catch-up route requires and the ten-year credit window. Step two is to gather source documents rather than relying on prior returns, because the earlier returns are what you are testing.
Step three is to classify every UK error by behaviour, distinguishing genuine mistakes made despite reasonable care, careless slips and anything that might look deliberate. That classification drives the disclosure route and the penalty you propose. Step four is to choose the route. Errors within the 12-month amendment window under section 9ZA of the Taxes Management Act 1970 can simply be amended online, as GOV.UK's guidance on correcting a Self Assessment return explains. Older errors involving US accounts usually go through the Worldwide Disclosure Facility.
Step five is to compute the extra UK tax, interest and proposed penalty, with a reasoned mitigation case. Step six is to feed the corrected UK liabilities into the US returns, so that each Form 1116 reflects the right foreign tax. Finally, step seven is to keep a written file showing when each error was identified and when it was corrected. If a customer correction notice ever arrives, that file is your proof that you took reasonable steps promptly.
How to Respond if You Receive a Customer Correction Notice
Read the Notice Narrowly, Then Check Everything
A customer correction notice will specify an inaccuracy or a kind of inaccuracy, such as "foreign dividend income", and a deadline. Your first task is to establish whether the suspected error is real. Your second, equally important, task is to ask whether the review reveals other errors outside the notice. Because the duty to correct applies to any error you become aware of, fixing only the item HMRC named in the customer correction notice while ignoring a second error you have now spotted would be a serious mistake.
Correct or Explain, With Evidence
If the return is right, explain why in writing and attach evidence, such as a reporting fund certificate or a workday sourcing calculation. HMRC may not appreciate that a US 1099 figure includes amounts already taxed in the UK in a different tax year. If the return is wrong, correct it before the deadline and pay the tax. Responding in time to a first customer correction notice in six years should remove any careless penalty, whereas missing the deadline creates a presumption of carelessness that you must then rebut.
Think About the US Return at the Same Time
Any correction to UK tax will feed into your foreign tax credit. Before you respond to a customer correction notice, model the US consequences so that you can file amended US returns promptly where the change creates a refund or, less commonly, where it reduces a credit you previously claimed. Our US-UK tax treaty optimisation service handles exactly this reconciliation.
Planning Points Before 1 April 2028
Clear Known Errors While They Are Still Careless
The most valuable planning step is also the simplest. If you know, or suspect, that an earlier UK return is wrong, correct it before 1 April 2028 while the existing careless treatment still applies. A voluntary, unprompted disclosure today attracts the lowest penalties available under Schedule 24. Our article on the Worldwide Disclosure Facility for US persons sets out the process in more detail.
Do Not Confuse This With the 2018 Requirement to Correct
Some clients remember the offshore Requirement to Correct of 2017 and 2018, which imposed penalties of up to 200% on offshore non-compliance not corrected by 30 September 2018. That was a one-off regime aimed at historic offshore errors, and its penalties still apply to years it covered, as our guide to failure to correct penalties for Americans in Britain explains. The new duty is different: it is permanent, it applies to onshore and offshore errors alike, and it bites whenever you become aware of an error in future.
Keep Your Advisers Talking to Each Other
Many wealthy Americans in Britain use one firm for UK returns and another for US returns. Under the new regime, that split becomes risky, because knowledge held by one adviser may well be treated as knowledge you hold once it has been communicated to you. When one adviser spots an error, the other needs to know promptly. A single team preparing both returns removes that gap, which is why we prepare US-UK tax returns together rather than in isolation. Where foreign accounts were also left off FBARs or Form 8938, our FBAR and FATCA team can align the FinCEN Report of Foreign Bank and Financial Accounts filings with the same timeline.
How TaxYork Can Help
TaxYork prepares US and UK tax returns for high-net-worth Americans, dual nationals and accidental Americans living in Britain. We run the US catch-up and the UK review as a single engagement, which means every UK error found during your US rebuild is disclosed to HMRC on the right basis and every extra pound of UK tax is reflected in your foreign tax credit.
For clients who have already received an HMRC letter or a customer correction notice, we review the position urgently, prepare the response or disclosure, and model the US refund or credit consequences. For clients who simply want certainty before 1 April 2028, we offer a two-country health check of prior returns. You can also read our guide to missed UK tax returns for Americans or learn about our IRS Streamlined Filing service.
Conclusion
The customer correction notice is the visible part of a much larger change. From 1 April 2028, every taxpayer will be under an explicit legal duty to correct any error they learn about, and ignoring a known error will turn it into a deliberate one, with penalties of up to 70% or more and a 20-year assessment window. For Americans in Britain, the risk is concentrated, because the very process of catching up with the IRS uncovers UK mistakes and records the date you found them.
The answer is not to avoid looking. Instead, look carefully, correct UK errors before the new regime begins, and sequence the corrections so that your US returns claim the extra UK tax as a credit. Handled in that order, a customer correction notice becomes something you never receive, and the cost of putting both returns right is often far smaller than the UK headline suggests.
Written by the TaxYork Expert Team — US-UK tax specialists.
Contact Us
If your US catch-up has uncovered UK errors, or HMRC has written to you, book a consultation with our US-UK team today. Email hello@taxyork.com or call 020 3488 8606 for a confidential discussion.
Disclaimer
This article provides general information about UK and US tax rules as published or proposed on 29 October 2026 and does not constitute tax, legal or financial advice. The duty to correct and the customer correction notice are draft legislation that may change before enactment, and transitional rules have not yet been published. Figures in the case study are illustrative and simplified, and exchange rates are approximate. You should obtain professional advice tailored to your circumstances before acting. TaxYork accepts no liability for actions taken on the basis of this article.