HMRC has published a consultation on introducing a new criminal offence for making reckless untrue statements in direct tax returns and declarations. The proposal extends criminal exposure beyond deliberate conduct to include “recklessness”, raising important questions on scope and threshold.
HMRC has published its consultation “Introducing a criminal offence for making reckless untrue statements or declarations in direct tax”, proposing a new standalone offence where a person makes an untrue statement or declaration on a reckless basis in relation to direct taxes. The proposal would align the position with the existing criminal offence in indirect taxes and is intended to strengthen HMRC’s enforcement toolkit where dishonesty cannot be established.
The proposal marks a significant shift. Existing criminal tax offences are generally directed at deliberate behaviour. By contrast, the new offence would extend potential criminal liability to cases where a taxpayer or agent is said to have acted recklessly in making an untrue statement or declaration.
Scope and threshold
The central issue will be how “recklessness” is defined and applied in practice. In broad terms, the consultation indicates that conduct may be in scope where a person makes a statement without regard to whether it is true, or consciously takes an unreasonable risk that it may be incorrect.
This introduces an inherently fact-sensitive threshold. There is a clear distinction between:
- taking a considered technical position in an area of genuine legal uncertainty; and
- submitting information without appropriate checking or enquiry.
The operation of the offence will depend on maintaining that distinction. If framed or applied too broadly, the measure risks bringing within the criminal sphere matters that are properly characterised as civil disputes or technical disagreements.
Proposed sanctions
The consultation indicates that the offence would be punishable by criminal sanctions, potentially including custodial sentences and unlimited fines.
This underlines the importance of ensuring that the offence is appropriately targeted and does not cut across existing civil penalty regimes.
Practical implications
From a disputes and risk perspective, the proposal raises a number of immediate considerations:
- Taxpayers and advisers will need to be able to evidence the basis on which positions have been taken, particularly in technically uncertain areas.
- Internal governance, review and sign-off processes may come under increased scrutiny.
- The boundary between robust technical disagreement and “recklessness” is likely to become a key area of engagement with HMRC.
A particular area of risk will be for taxpayers investigating potential errors and determining the point at which maintaining established filing positions becomes reckless.
There is also a broader point. The UK tax system frequently involves areas of genuine legal and factual uncertainty. The introduction of a criminal offence based on recklessness should not inhibit taxpayers from taking sustainable and properly reasoned positions in those areas.
Comment
At a policy level, the Government will need to ensure that the measure is clearly targeted at those who are at serious fault by engaging in serious non-compliance. It should not be used to pursue taxpayers or advisers who have taken considered and sustainable positions that do not align with HMRC’s preferred interpretation, particularly where the law itself is uncertain.
Careful definition of the offence, supported by clear operational guidance, will be essential if the proposal is to achieve its intended effect without unintended consequences.
The consultation document can be accessed here.
If you would like to discuss the issues raised in this consultation or the potential implications for your tax risk position, please get in touch.