HM Revenue and Customs (HMRC) has proposed new measures aimed at cracking down on dishonest taxpayers, but experts caution these could result in penalties for individuals making honest errors. The proposals seek to introduce a criminal offence for “reckless” mistakes made on self-assessment tax returns.
Currently, penalties are applied only when errors are deemed “deliberate”, such as knowingly submitting false information to misrepresent tax liabilities. However, the new rules would extend penalties to more “careless” mistakes, including those made without properly verifying eligibility for tax relief claims.
HMRC has attempted to reassure taxpayers that genuine, inadvertent mistakes would not be classed as “reckless” under the proposed legislation. Nevertheless, the Chartered Institute of Taxation (CIOT) has expressed concern that the definitions of carelessness, recklessness, and deliberate wrongdoing may not be sufficiently clear. Ellen Milner from the CIOT explained to the Telegraph that this lack of clarity could expose compliant taxpayers and professional advisers to the risk of criminal investigations for conduct that is not dishonest.
Under the current system, penalties vary depending on the nature of the error: mistakes due to lack of reasonable care can incur charges up to 30% of the tax owed; deliberate errors may result in penalties ranging from 20% to 70%; and deliberate and concealed errors can attract up to 100% penalty fees.
The proposed changes would maintain a similar tiered structure. Deliberate errors could lead to fines of up to 100%, while accidental mistakes might face charges up to 30%. HMRC also plans to consider taxpayers' compliance history, exempting those who promptly correct mistakes and have no formal notices recorded within the previous six years from penalties.
Conversely, failure to rectify errors after notification may result in those errors being treated as deliberate. Furthermore, HMRC may review tax returns dating back up to 20 years as part of enforcement efforts.
These proposals are currently under consultation, with the period open until September, and no implementation date has been announced. An HMRC spokesperson stated, “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.”