Introduction
The Government’s consultation on creating a new criminal offence for making “reckless” false or misleading statements to HMRC has sent ripples through the tax profession.
If enacted as proposed, the offence would mark a significant lowering of the threshold for criminal liability in tax matters… and raises genuine questions about whether ordinary taxpayers making honest mistakes could find themselves in the crosshairs.
The current position
Existing criminal offences for false statements to HMRC require proof of deliberate dishonesty.
Under the Theft Act 1968 and common law fraud, the prosecution must establish that the taxpayer knew the statement was false or was deliberately reckless as to its truth.
This is a high bar… and rightly so, given the serious consequences of a criminal conviction.
The existing civil penalty regime in Schedule 24 to the Finance Act 2007 already distinguishes between careless inaccuracies (penalties of up to 30%), deliberate inaccuracies (up to 70%), and deliberate and concealed inaccuracies (up to 100%).
This graduated system allows HMRC to impose meaningful sanctions for culpable behaviour without criminalising ordinary negligence.
What’s being proposed
The consultation proposes a new criminal offence of making a statement to HMRC that is false or misleading in a material particular, where the person making it is “reckless” as to whether it is false or misleading.
Crucially, this would be a strict liability offence with no requirement to prove dishonest intent.
The proposal appears inspired by similar provisions in financial services regulation, where reckless misstatements to regulators can attract criminal penalties.
But tax is different. Virtually every adult in the country interacts with the tax system, and the complexity of UK tax law means that inadvertent errors are commonplace even among sophisticated taxpayers.
The problem with “recklessness”
In criminal law, recklessness typically means consciously taking an unjustified risk.
But the boundary between carelessness and recklessness can be fuzzy… especially in tax, where many positions involve genuine uncertainty.
Consider some scenarios that could potentially fall within the proposed offence:
- A taxpayer who takes a reasonable but ultimately incorrect position on a technical point, without obtaining professional advice
- A landlord who claims expenses that they genuinely believed were deductible, but turn out not to be
- A business owner who relies on their accountant’s calculations without independent verification
- A taxpayer who fails to disclose a source of income because they misunderstand HMRC guidance
Would any of these be “reckless”?
It would depend entirely on the circumstances… and therein lies the danger.
The prospect of criminal prosecution could have a chilling effect on taxpayers taking legitimate positions that involve any element of uncertainty.
Safeguards and their limitations
The consultation acknowledges that safeguards would be needed to prevent the offence being used inappropriately. Suggested safeguards include:
- Requiring prosecution to be authorised by a senior HMRC officer or the Director of Public Prosecutions
- A materiality threshold (the false statement must relate to a significant amount of tax)
- A “reasonable excuse” defence
But prosecutorial discretion is not the same as legal protection. A taxpayer who faces potential criminal liability, even if prosecution is unlikely, may be pressured into settling disputes on unfavourable terms rather than exercising their legitimate right to challenge HMRC’s position.
Moreover, the existence of a criminal offence fundamentally changes the dynamic of any HMRC enquiry. The right to remain silent under caution, the admissibility of previous statements, and the taxpayer’s relationship with their advisers would all be affected.
The professional perspective
Tax professionals have expressed significant concern about the proposal.
The Chartered Institute of Taxation has warned that the offence could “criminalise conduct that is properly dealt with through the civil penalty regime” and create “disproportionate anxiety” among taxpayers trying in good faith to comply with their obligations.
There is also a practical concern about the scope of the offence. Would it apply to statements made in correspondence during an enquiry?
To positions taken on returns that are subsequently found to be incorrect?
To oral representations made during meetings with HMRC?
The consultation is notably vague on these points.
Comparison with other jurisdictions
The UK already has robust criminal sanctions for tax fraud.
The prosecution rate for serious tax offences has increased significantly in recent years, and HMRC’s Fraud Investigation Service has considerable powers to investigate and prosecute deliberate non-compliance.
Most comparable jurisdictions draw a clear line between civil penalties for negligent errors and criminal prosecution for deliberate evasion. The proposed offence would blur this distinction in a way that could have unintended consequences for tax administration.
What happens next?
The consultation closed earlier this year, and HMRC is considering responses.
If the Government proceeds with legislation, it is likely to be included in a future Finance Bill – though the timing remains uncertain.
For now, taxpayers should continue to take reasonable care with their returns and maintain proper documentation of the basis for their positions.
Those facing HMRC enquiries should be aware that any new offence would unlikely apply retrospectively to past behaviour – but should nonetheless ensure that all communications with HMRC are carefully considered.
The debate over reckless statements ultimately reflects a broader tension in tax administration: the desire to deter non-compliance while maintaining a system that ordinary taxpayers can navigate without fear of disproportionate consequences.
Getting that balance right matters… and the current proposals do not, in my opinion, appear to have achieved it.