HMRC has launched a consultation on plans to introduce a new criminal offence for individuals who make reckless, untrue statements or declarations in relation to direct taxes, including Income Tax and National Insurance.
If introduced, the new offence would bring the direct tax system more closely into line with the existing rules for VAT and Customs and Excise, where individuals can already face criminal prosecution for submitting incorrect information recklessly, even where there is no evidence of deliberate dishonesty.
What is changing?
Currently, HMRC must generally demonstrate a higher level of wrongdoing before pursuing criminal action for inaccurate direct tax returns. Under the proposed legislation, taxpayers could face prosecution where they have acted recklesslywhen making statements or declarations, even if they did not intentionally provide false information.
The proposed offence could result in:
- A criminal conviction
- An unlimited fine
- A custodial sentence, with HMRC suggesting a maximum prison term of up to two years, similar to existing Customs and Excise legislation
By comparison, certain VAT offences can already carry prison sentences of up to 14 years in the most serious cases.
What does HMRC consider to be “reckless”?
HMRC’s consultation includes several examples of behaviour it believes could amount to recklessness.
One example is making a substantial tax relief claim without properly reading the relevant guidance or seeking professional advice, simply assuming that the claim will “probably be fine”.
Another example involves a self-employed individual who knows they have several bank accounts and suspects they have received taxable income into more than one account. Rather than checking all of their statements, they estimate the income from their main account and ignore the others, resulting in a materially inaccurate tax return.
In both scenarios, HMRC argues that the taxpayer failed to take reasonable steps to establish the correct tax position.
Carelessness vs recklessness
Importantly, HMRC states that genuine carelessness alone would not be covered by the proposed offence. Existing penalty rules already deal with careless mistakes, while deliberate tax evasion remains subject to separate criminal and civil sanctions.
The key distinction is whether a taxpayer has shown a reckless disregard for the accuracy of the information they submit.
What does this mean for taxpayers?
Although these proposals are still under consultation, they highlight HMRC’s continued focus on improving compliance and tackling inaccurate tax reporting.
For individuals and business owners, the message is clear: taking reasonable care when preparing tax returns is becoming increasingly important. Where there is any uncertainty, seeking professional advice before submitting a return can help reduce the risk of costly mistakes and potential penalties.
If you are unsure about your tax position or would like support with your personal or business tax affairs, our experienced team is here to help.
The full HMRC consultation is available on the GOV.UK website:
https://www.gov.uk/government/consultations/proposed-offence-for-reckless-untrue-statements-direct-taxes/introducing-a-criminal-offence-for-making-reckless-untrue-statements-or-declarations-in-direct-tax–3#summary
