Tax experts warn new offence covering “reckless” tax statements could blur the line between genuine mistakes and criminal wrongdoing.
Taxpayers could potentially face criminal investigation, unlimited fines and even imprisonment under proposed new powers being considered by HM Revenue and Customs, prompting warnings from tax professionals about the consequences for people who make errors in good faith.
HMRC is considering creating a criminal offence covering taxpayers who make false statements or declarations about their tax affairs where their behaviour is judged to have been “reckless”.
The proposed offence would extend to direct taxes, including income tax and information submitted through self-assessment returns.
Deliberately evading tax is already a criminal offence, but the latest proposal would give HMRC the ability to pursue cases where dishonesty cannot necessarily be proved, but where officials believe a taxpayer knowingly disregarded a clear risk that information they submitted was incorrect.
HMRC insists ordinary mistakes would not result in prosecution and says the threshold for proving recklessness would be significantly higher than that for simple carelessness.
However, the proposals have caused concern among tax professionals, who fear the distinction between carelessness and recklessness may not always be sufficiently clear.
The Chartered Institute of Taxation, CIOT, has warned that honest taxpayers could find themselves exposed to criminal proceedings over mistakes rather than deliberate attempts to deceive the taxman.
Under examples contained within HMRC’s consultation, potentially reckless behaviour could include claiming a substantial tax relief without first checking whether the taxpayer was entitled to it.
Another example could involve a self-employed person completing their own tax return and failing to properly check whether additional income had been received into another bank account.
HMRC already has criminal powers covering comparable conduct involving indirect taxes, including VAT. The proposals would widen the scope to direct taxes, bringing areas such as income tax within the regime.
If convicted under the proposed offence, taxpayers could face an unlimited fine or a prison sentence of up to two years.
The CIOT, has raised concerns that the proposals may fail to provide a sufficiently clear dividing line between careless mistakes, reckless behaviour and deliberate wrongdoing.
The organisation argues that criminal sanctions should be reserved for serious misconduct and should not catch taxpayers who have acted honestly but made an error, or who have reached a legitimate interpretation of tax rules with which HMRC subsequently disagrees.
HMRC says recklessness would require evidence that an individual was aware of an obvious risk that information was false but chose to submit it anyway.
Significantly, however, HMRC’s consultation states that the proposed offence could apply in circumstances where “dishonesty cannot be established”.
The plans come as the Government attempts to reduce the UK’s tax gap, the difference between the tax theoretically owed to the Exchequer and the amount ultimately collected.
The tax gap was estimated at £59.2 billion in 2024-25, compared with £46.8 billion in the previous year.
HMRC says straightforward carelessness would remain outside the proposed criminal offence. An example given by the department is a taxpayer accidentally failing to declare a relatively small amount of bank interest because of a genuine misunderstanding.
Instead, officials say the proposed powers are intended to address conduct falling between ordinary carelessness and deliberate dishonesty.
But tax professionals remain concerned about precisely where that boundary would be drawn in practice.
Accountants have warned that determining when a failure to check information crosses the line from carelessness into recklessness could be difficult.
There is a danger of taxpayers becoming subject to potentially “life-changing criminal investigations” because HMRC believed they knew, or ought to have known, that information contained within their return might be wrong.
The proposal follows separate HMRC plans concerning taxpayers who fail to correct errors after those mistakes have been identified.
HMRC has strongly rejected suggestions that people making genuine errors would be criminalised.
A spokesman said it was “totally incorrect” to suggest genuine mistakes would result in prosecution, adding that the proposal was specifically targeted at people making reckless false statements or declarations.
HMRC said it was considering the responses received during its consultation before deciding how to proceed.
The dispute is therefore likely to centre not on deliberate tax evasion, which is already criminal, but on where HMRC ultimately draws the line between an innocent mistake and behaviour serious enough to justify the threat of prosecution.
