Making “reckless untrue statements or declarations” about direct taxes, such as income tax or capital gains tax, could become a crime if the Government pushes ahead with plans outlined in a recent consultation, which closed on August 16.
This remains a proposal, rather than a new offence already in force.
The Government wants to bring in this additional offence to align the treatment of direct and indirect taxes, as it’s already an offence to make reckless false statements to HMRC about taxes such as VAT and customs duties. But this same offence doesn’t currently exist for direct taxes.
Adding it would give prosecutors an alternative charge where they couldn’t prove that a person was dishonest, but had evidence that the person was aware of the risk that a statement was untrue and unreasonably proceeded to make it anyway.
It would also allow courts to impose a penalty that more accurately reflects misconduct that lies between carelessness and deliberate fraud.
What would count as reckless conduct?
Under the proposal, recklessness means being aware that a statement might be untrue and unreasonably taking that risk. An innocent mistake, or carelessness alone, would not meet this test.
But it would not make every mistake on an HMRC form a criminal offence. If you should have known the information was incorrect, or you made an innocent mistake, you wouldn’t reach the threshold for prosecution for the proposed offence.
Bear in mind that communications with HMRC coming under this regime could extend beyond just a filed tax return. A ‘statement’ could be written, spoken or implied by someone’s actions. A ‘declaration’ would be a formal assertion of fact, made in a prescribed way, confirming that information was true or believed to be true. So, an offence created on this basis could extend beyond tax return entries to correspondence, documents you provide to HMRC, and even discussions or other representations about someone’s tax affairs.
Any agent, such as an accountant or tax adviser, could also be held criminally liable if they recklessly submitted an untrue statement on behalf of a client. The Government proposes that cases could be heard in a magistrates’ court or the Crown Court. On conviction in the Crown Court, the proposed maximum would be two years’ imprisonment, an unlimited fine, or both.
What would it mean for individuals and their agents?
Any sentence would be decided by the courts and would reflect the seriousness of the conduct and the harm caused. Innocent mistakes would not fall within the proposed offence. Existing civil rules would continue to apply, with any penalty depending on the circumstances and whether reasonable care was taken.
However, several professional bodies are concerned that the distinction between carelessness and criminal recklessness won’t be sufficiently clear in practice. For example, the Chartered Institute of Taxation argues that the case for extending criminal liability has not been made and that the proposal lacks a clear evidence basis.
The Low Incomes Tax Reform Group (LITRG) has also opposed the current proposal as it’s concerned that the consultation doesn’t explain clearly enough how HMRC would distinguish between a civil failure to take reasonable care and criminal recklessness. Critics are also fearful that the potential for criminal investigation could make taxpayers and advisers excessively cautious, increase the cost of professional advice and disadvantage people who can’t afford specialist help to work through the ever more complicated tax system.
Please note: This article provides general information based on the position at the date of publication. The proposed offence and penalties may change before any legislation is introduced. This is not personal tax or legal advice. Please seek advice about your own circumstances.
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If you are worried about these proposals, or have concerns about your personal or business taxes, please contact us. We can help you understand your tax position and discuss the next steps, including specialist support where needed.