A new criminal offence for “reckless” tax statements could leave honest taxpayers and advisers facing prosecution for mistakes rather than dishonesty.
In its response to a government consultation, the Chartered Institute of Taxation raised serious concerns about proposals to introduce a new criminal offence for making reckless untrue statements or declarations in direct tax matters.
It argues that the proposals risk blurring the line between genuine mistakes and deliberate wrongdoing, creating uncertainty for taxpayers and professional advisers operating in complex areas of tax law.
The CIOT added that the Government has yet to demonstrate why a new criminal offence is needed when extensive civil penalties and criminal powers already exist. It also questions whether the concept of “recklessness” can be clearly distinguished from carelessness in a tax system that frequently requires taxpayers and advisers to make judgement calls on uncertain legislation, valuations and technical interpretations.
We’re concerned the proposed offence will not create a clear enough distinction between carelessness, recklessness and deliberate conduct
Ellen Milner, Director of Public Policy said: “Tax advisers and taxpayers regularly have to make decisions in areas where the law is complex and where reasonable people can disagree. A criminal offence should be reserved for genuinely serious wrongdoing, not situations where someone acting in good faith makes a mistake or reaches a different conclusion from HMRC.
“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.
“If people become worried that ordinary discussions with HMRC or disclosures about uncertain tax positions could expose them to criminal sanctions, that risks discouraging the open and constructive engagement on which the tax system depends.”
The CIOT’s response also warns that the proposals could have a range of unintended consequences, including higher compliance costs, more heavily caveated advice and a reduction in voluntary disclosures and cooperation with HMRC.
The Institute is calling for further consultation and engagement before any legislation is brought forward, arguing that taxpayers and advisers must be able to understand clearly, in advance, what conduct could expose them to criminal liability.
