ICAS responds to proposals for a new criminal offence for reckless direct tax statements

We have responded to the consultation on plans to introduce a new direct tax criminal offence for “making reckless untrue statements or declarations for direct taxes”. We didn’t support the proposals and highlighted concerns that the new offence would be difficult to apply fairly and consistently.

We looked at the proposals in detail in an earlier article and subsequently joined a stakeholder discussion with HMRC to discuss the proposals. It’s already an offence to fraudulently evade both direct tax and indirect tax. However, an offence of making reckless statements or declarations currently only exists for indirect taxes under section 167(1) of the Customs and Excise Management Act 1979 (CEMA), and section 72(3) of the Value Added Tax Act 1994. 

According to the consultation, the proposed new direct tax offence is intended to harmonise the criminal offences available, to provide greater clarity for taxpayers “who could expect a consistent approach to enforcement across all tax types”. However, we understand that in practice the existing indirect tax offences have not generally been used on a standalone basis, so it isn’t clear what this means. The lack of evidence relating to the existing indirect tax offences makes it hard to assess how the proposed new offence would be used and how effective it might be.

As currently proposed, the new offence would involve a high degree of subjective interpretation to determine whether behaviour should be treated as reckless (within scope of the new offence) or careless (remaining within the civil regime). We are concerned that many taxpayers (and advisers) would struggle to understand the proposed new offence and how it might operate, which is undesirable for a criminal offence.

We suggested that the introduction of any direct tax offence needs further consideration, to avoid potential unintended consequences. Our response also dealt with the specific questions in the consultation - some of the key points we raised are outlined below. 

Impacts on taxpayers and advisers

The consultation emphasises the anticipated deterrent effect of the new offence. However, for this to be realised in practice taxpayers would need to be aware of (and understand) the offence. Advisers would also need to understand when it is intended to apply and how it would be used. HMRC would need to publicise and explain the details of the offence, but it isn’t apparent how behaviour within the scope of the new offence could readily be determined.

There would need to be a very clear distinction between ‘carelessness’ and ‘recklessness’, given that the latter would expose taxpayers to the risk of prosecution. Unfortunately, the two examples in the consultation don’t help to clarify how the offence would be applied in practice and could have unintended consequences. 

Taxpayers who want to comply and are already worried about the potential for making mistakes, would be concerned that getting something wrong could lead to prosecution. In view of one of the examples, unrepresented taxpayers might conclude that HMRC requires them to take advice that they cannot afford because consulting the guidance might be insufficient (and could lead to HMRC assuming that they had acted recklessly).

From the perspective of agents, the consultation mentions the legislation introduced in Finance Act 2026 to change “the punishable behaviour of tax agents from ‘dishonest’ to ‘sanctionable’”. Sanctionable conduct is defined as “in the course of acting as a tax adviser, doing something with the intention of bringing about a loss of tax revenue.” It goes on to say that the proposed criminal offence will “apply equally to any agent who recklessly makes a statement or declaration to HMRC in relation to a direct tax matter.”

Numerous concerns were raised about the possibility that HMRC would seek to apply the ‘sanctionable conduct’ definition to cases where an agent had made a mistake or arrived at a different interpretation of the legislation to HMRC. Similar concerns have been raised with us about the proposed new offence for "recklessly making a statement or declaration". 

In response to the concerns about ‘sanctionable’ conduct, the Exchequer Secretary to the Treasury stated in the parliamentary debates about the Finance Bill that the new powers “will not affect advisers who act in good faith, or who take a credible view as to what the law requires”. A similar statement might be necessary in the context of the proposed new offence. 

Scope of the new offence

Our response noted that the definition of the proposed new offence lacks clarity. It appears that HMRC might make decisions about prosecution based on assumptions about behaviour which could be mistaken. It’s difficult to see how the proposed offence could be applied fairly and consistently.

Another concern raised in the context of the ‘sanctionable conduct’ measure, but also relevant to the proposed criminal offence, relates to agents acting for clients who find it difficult to comply (for example, keeping very poor records or not providing full information to the agent). 

The consultation on ‘sanctionable conduct’ noted that it was an important principle that agents should still feel able to work with these clients. However, as with the ‘sanctionable conduct’ measure, advisers who adhere to professional standards may not be willing to work with difficult clients if this could potentially expose them to the proposed criminal offence. Difficult clients would then struggle to obtain assistance (which allows them to achieve a basic level of compliance) and would be likely to fall into outright non-compliance.

Our response discusses different scenarios where it isn’t clear whether the agent or their client might be in scope. This is another area that would require clarification before any new offence could be introduced.

Impact on compliance behaviour

Our response discussed various concerns arising from the two examples in the consultation. In both cases, there would be severe consequences for the taxpayer, if HMRC decided that the right approach would be to seek to prosecute for a criminal offence based on what appear to be assumptions that the taxpayers were “aware of the risk of their statement’s falsity”. It is difficult to see how the proposed offence could be applied fairly and consistently.

We also discussed a further lack of clarity around the interaction between the proposed new offence and the civil regime – and HMRC’s Code of Practice 9 process (COP 9). We suggested that COP 9 (and the Criminal Investigation Strategy) should be reviewed and updated if the government decides to proceed with the proposed new offence. 

Challenges and risks

Our responses to earlier questions had already highlighted some important challenges to implementation, but we highlighted some additional points here, including: 

We agreed that there would be a serious challenge in ensuring clear communication about “what constitutes recklessness, distinguishing it from inadvertent mistakes, and providing accessible guidance to avoid confusion”. As proposed in the consultation, the distinction between careless behaviour (within the civil regime) and ‘reckless’ behaviour is highly subjective and, in many cases, it appears that it would depend on assumptions made by HMRC. Arbitrary decisions may not be perceived as fair.

The consultation also mentions that mitigation strategies may involve “targeted education campaigns and robust support strategies”. We noted that both would be essential. There will only be a deterrent effect if taxpayers (and agents) understand when they might fall within the scope of the proposed offence and what steps would be reasonable to check their position. It also needs to be clear whether ‘robust support strategies’ would include support for unrepresented taxpayers trying to determine the correct tax treatment (and worried about being prosecuted for getting something wrong). 

Let us know what you think

We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email us to share your insights and feedback.