HM Revenue and Customs (HMRC) has come under scrutiny following plans to introduce criminal offences related to tax declarations. The proposal, which would criminalise “recklessly making statements or declarations in tax affairs,” has attracted criticism from The Institute of Chartered Accountants in England and Wales (ICAEW).
The ICAEW has expressed concerns that the new offences may confuse taxpayers and discourage them from making voluntary disclosures. Currently, HMRC is considering establishing a criminal offence encompassing “reckless untrue statements or declarations in direct tax.”
Richard Jones, senior tax technical manager at ICAEW, commented: “We oppose this measure due to significant uncertainty surrounding the circumstances under which HMRC might consider a taxpayer or agent to have acted recklessly. This ambiguity could undermine the deterrent effect intended by the offence.”
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Jones emphasised the need for much clearer guidance to help taxpayers and advisors understand when such an offence would apply. He added: “Given the serious potential consequences, combined with unclear scope and possible inconsistent application, advisors and taxpayers might limit their interactions with HMRC, including reluctance to make voluntary disclosures from fear of criminal investigations. This could inadvertently widen the tax gap.”
He further recommended that HMRC should instead focus on enhancing the use of existing powers to pursue appropriate prosecutions and civil actions.
Currently, the system includes civil penalties for inaccuracies and failure to notify, alongside criminal offences that relate to fraud and dishonest behaviour.
Responding to the criticism, HMRC stated: “The government is committed to closing the tax gap by tackling non-compliance through targeted enforcement, stronger penalties, and better detection of deliberate evasion. Concurrently, it aims to encourage voluntary compliance by making the tax system simpler, clearer, and easier to use, helping taxpayers to get things right the first time.”
HMRC highlighted that the tax gap for 2023 to 2024 is estimated at approximately 5.3%, equating to £46.8 billion. The government has announced a substantial £7.5 billion intervention package designed to “go further and faster” in ensuring fair tax contribution from all.
“Our approach balances prevention, support, and enforcement by providing clear guidance and digital tools to assist taxpayers in meeting their obligations,” HMRC added. “We also leverage intelligence to identify and address high-risk behaviours. Our goal is to foster a system where compliance is straightforward and non-compliance is effectively deterred, thereby protecting revenue, maintaining fairness, and building trust in the tax system.”