HMRC proposes new criminal offence for 'reckless' tax errors
HM Revenue & Customs (HMRC) has put forward proposals that would, if approved, introduce a new criminal offence targeting "reckless" errors on self-assessment tax returns. The plans, currently open for consultation until September, would widen the scope of penalties beyond deliberate mistakes to include certain careless errors, a move that has prompted warnings from tax experts about the potential impact on ordinary taxpayers.
Under current rules, HMRC can only levy penalties on mistakes considered to be "deliberate" — for instance, knowingly submitting documents that misrepresent the amount of tax owed. The proposed changes would extend this to cover more "careless" errors, such as failing to properly verify eligibility for a tax relief before making a claim.
Experts warn of 'prosecution for mistakes'
The Chartered Institute of Taxation (CIOT) has cautioned that honest taxpayers could find themselves facing "prosecution for mistakes" under the new framework. Ellen Milner of the CIOT told the Telegraph: "We are concerned that the proposed offence will not create a clear enough distinction between carelessness, recklessness and deliberate conduct. Without that certainty, there is a real risk that compliant taxpayers and advisers could face the threat of criminal investigation for conduct that falls short of dishonesty."
The CIOT's concerns centre on the legal threshold for "reckless" behaviour, which they argue may not be sufficiently distinct from carelessness in the draft proposals. Without clear boundaries, they say, even well-intentioned taxpayers could be caught up in criminal investigations.
HMRC reassures on genuine mistakes
HMRC has sought to reassure taxpayers that genuine mistakes would not meet the legal threshold to be classed as "reckless" under the new plans. An HMRC spokesperson said: "We know most of our customers act in good faith and want to get their tax right. These proposals are designed to help minimise penalties for those who swiftly correct mistakes when we flag them and make the process of doing so quicker and easier."
The spokesperson's comments highlight the proposed framework's focus on taxpayer behaviour, with the aim of rewarding those who correct errors promptly.
Penalty structure: current and proposed
HMRC's current penalty regime categorises mistakes into three types, each attracting different charges. Errors arising from a lack of reasonable care can be charged up to 30% of the tax owed. Deliberate mistakes can result in a penalty of between 20% and 70% of the additional tax due, while a deliberate and concealed error can go as high as 100%.
The new proposals would simplify this to some extent: deliberate errors could be fined up to 100% of the tax owed, while accidental mistakes could reach a 30% charge. The framework would also take a taxpayer's track record into account.
Track record and correction incentives
Under the proposed new framework, those who correct their mistakes upon being notified by HMRC, and who haven't received any other formal notices within the last six years, will not be handed a fine. This is designed to encourage swift self-correction.
However, should a taxpayer fail to address an error once flagged, it will subsequently be treated as deliberate, potentially attracting the higher penalties. The proposals would also allow HMRC to review previous tax assessments going back as far as 20 years.
Consultation and timeline
The new rules are proposals at this stage, with a consultation period running until September. No date has yet been confirmed for when the changes could come into force. The move is part of HMRC's broader efforts to clamp down on dishonest taxpayers, but the reaction from the CIOT underscores the delicate balance between tackling non-compliance and protecting honest taxpayers from undue criminalisation.