HM Revenue and Customs (HMRC) has put forward new proposals aimed at cracking down on dishonest taxpayers, prompting concerns from experts that even innocent errors could lead to prosecutions. The planned changes would introduce a criminal offence for “reckless” mistakes on self-assessment tax returns.
Currently, HMRC levies penalties only when errors are deemed “deliberate”, such as the intentional submission of falsified tax documents. Under the new proposals, however, a wider range of mistakes classified as “careless”-for example, failing to verify eligibility before claiming tax relief-could also attract penalties.
HMRC has sought to reassure the public that genuine mistakes would not reach the threshold of “recklessness” necessary for prosecution. Nonetheless, the Chartered Institute of Taxation (CIOT) has expressed concern that the boundary between carelessness, recklessness, and deliberate conduct is insufficiently clear, potentially exposing compliant taxpayers to criminal investigations for unintentional errors.
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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.”
Under current regulations, penalties vary depending on the severity of the mistake. Those arising from a lack of reasonable care can incur a penalty of up to 30% of the additional tax owed. Deliberate errors can be penalised between 20% and 70%, while deliberate and concealed mistakes may attract penalties up to 100%.
The proposed changes would raise the maximum penalty for deliberate errors to 100%, while accidental mistakes could see penalties of up to 30%. The new framework would also consider a taxpayer’s history; those who promptly correct notified errors and have a clean record over the past six years would avoid fines.
If taxpayers fail to address identified errors, the mistakes may be treated as deliberate. Furthermore, HMRC would have the authority to investigate past tax assessments extending back up to 20 years.
These proposals are still under consultation, with the period open until September. No implementation date has yet been announced.
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.”