HMRC is facing a backlash over plans for a new criminal offence that could see taxpayers sent to prison for making ‘reckless’ false statements about their tax affairs.
The proposals have been condemned by a leading accountancy body, which has demanded that HMRC explain why its existing civil penalties and criminal offences are not enough. The Association of Chartered Certified Accountants (ACCA) said it supported efforts to strengthen the integrity of the tax system, but questioned why another criminal offence was necessary.
ACCA questions need for new offence
It said HMRC already has civil penalties for inaccuracies and failures to notify, as well as criminal offences covering fraud and dishonest conduct.
Glenn Collins, Head of Technical and Strategic Engagement at ACCA, said: "A reassessment of all existing powers is overdue. Piecemeal additions and changes without an evaluation of the current powers HMRC have have resulted in issues for HMRC, taxpayers and agents."
ACCA said criminal liability should only arise where a person consciously disregards an obvious and unjustifiable risk that a statement is false.
It warned that people should not face prosecution simply because they have reached a reasonable interpretation of uncertain tax legislation or made a genuine error despite taking reasonable care.
Joe Fitzsimons, Senior Manager Policy and Insights – EEMA & UK at ACCA, said: "If HMRC were to be given such powers, HMRC would have to provide comprehensive guidance including covering to the extent to which advisors would need to verify client information in order to not be considered reckless."
Proposed penalty and scope
Under the Government's proposal, the new offence could carry a maximum sentence of two years in prison, an unlimited fine, or both. However, this would be the maximum rather than an automatic sentence.
The proposed offence would be an ‘either way’ offence, meaning a case could be heard in a Magistrates’ Court or the Crown Court, where there would be a trial by jury.
The final sentence would be decided by the courts, not HMRC, with judges required to consider the seriousness of the offence, the harm caused and the offender's culpability.
The Government insists the measure is not aimed at people who make genuine mistakes or misunderstand complicated tax rules. Instead, it is intended to target people who are aware there is a risk a statement they are making is false but go ahead regardless.
Simply failing to realise that something was wrong would not be enough. Nor would it be sufficient that the taxpayer ‘ought to have known’ or had been careless.
The new offence would apply to statements and declarations around direct taxes such as Income Tax and Capital Gains Tax. At present, criminal offences already exist for certain indirect taxes, including VAT and customs duties.
The Government says this creates an inconsistency in the tax system because someone can currently face prosecution for making a reckless false statement in relation to an indirect tax, but there is no equivalent general offence covering direct tax.
Government rationale and next steps
The Government says the new offence is intended to close this gap and give prosecutors another option in serious cases where they cannot prove dishonesty.
Its consultation says the aim is to ensure consistency across tax regimes and ensure that court outcomes properly reflect a defendant's behaviour and culpability, while helping efforts to close the tax gap.
The Government says that under the current system, a taxpayer accused of fraudulent evasion must be shown to have acted dishonestly. If a jury is not convinced that dishonesty has been proved, the person must be acquitted of that offence.
But ministers argue there can be cases where a jury is satisfied that someone recklessly made a false statement, even though dishonesty has not been established.
The Government says it is therefore right for the courts to have the option of convicting someone of the lesser offence where the evidence supports it. The Government also argues the proposals would help protect public funds and reinforce public confidence in HMRC's ability to enforce the law fairly.
It estimates that the UK tax gap was £46.8billion, or 5.3% of total theoretical tax liabilities, in 2023/24 and says it is committed to tackling non-compliance through targeted enforcement, stronger penalties and improved detection of deliberate evasion.
The consultation closed on August 16 and HMRC says it will publish a summary of responses, together with any draft legislation, as soon as possible. HMRC has been contacted for further comment.
