HM Revenue & Customs (HMRC) has launched a consultation on proposals to introduce a new criminal offence for making reckless, untrue statements or declarations relating to direct taxes such as Income Tax and National Insurance.
The proposal aims to bring the rules for direct taxes more closely into line with existing legislation covering VAT, Customs and Excise.
If introduced, the new offence would increase the importance of ensuring tax returns and claims are completed accurately and supported by appropriate evidence.
Why Is HMRC Proposing This Change?
Currently, there is no equivalent criminal offence for reckless inaccuracies relating to direct taxes.
For indirect taxes, such as VAT and Customs duties, individuals can already face prosecution for making incorrect statements or submitting inaccurate documents knowingly or recklessly, even where dishonesty cannot be proven.
HMRC is now proposing similar powers for direct tax matters.
The consultation forms part of HMRC’s wider focus on improving tax compliance and reducing inaccuracies in tax returns.
What Could the New Offence Involve?
Under the proposals, individuals who make reckless, untrue statements relating to direct taxes could face:
- Criminal prosecution.
- Financial penalties.
- A custodial sentence.
The exact penalties have not yet been confirmed.
HMRC is considering aligning the legislation with existing Customs and Excise rules, which allow for:
- Up to two years’ imprisonment.
- Unlimited fines determined by the courts.
What Does HMRC Mean by “Reckless”?
A key point within the consultation is the distinction between carelessness and recklessness.
HMRC has stated that genuine mistakes or simple carelessness would not be captured by the proposed offence.
Instead, the focus is on situations where someone consciously ignores obvious risks or fails to take reasonable steps before making a declaration.
HMRC’s Examples
The consultation includes several examples of behaviour HMRC considers potentially reckless.
These include:
Claiming Tax Relief Without Checking the Rules
A taxpayer makes a significant tax relief claim without reading the relevant guidance or seeking professional advice, assuming it will “probably be fine.”
Estimating Income Without Checking Records
A self-employed individual knows they have multiple bank accounts but only estimates the income from one account instead of reviewing all statements.
As a result, they submit a materially inaccurate tax return.
HMRC believes these types of actions could fall within the scope of the proposed offence if they demonstrate reckless behaviour.
Deliberate Tax Evasion Is Already Covered
It’s important to note that deliberate tax fraud is already addressed through existing legislation.
The proposed offence is intended to fill the gap between:
- Genuine mistakes.
- Deliberate tax evasion.
The focus is on individuals who fail to take reasonable steps before submitting important tax information.
What Does This Mean for Businesses and Taxpayers?
Although the proposals are still under consultation, they reinforce the importance of:
- Keeping accurate financial records.
- Checking tax returns carefully before submission.
- Understanding eligibility for tax reliefs.
- Seeking professional advice where the rules are unclear.
As tax legislation becomes increasingly complex, obtaining advice before making significant claims can help reduce compliance risks.
Final Thoughts
HMRC’s proposed offence reflects its continued focus on improving tax compliance and reducing inaccurate tax reporting.
While the consultation is ongoing, the proposals serve as a reminder that accurate record keeping and careful preparation of tax returns are more important than ever.
If you’re unsure about a tax claim, relief or return, seeking professional advice before submitting information to HMRC can help you avoid costly mistakes and provide greater peace of mind.
If you’d like support with your tax affairs, we’re always happy to help.
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📧 info@ojwassociates.co.uk
