The Institute of Chartered Accountants in England and Wales (ICAEW) has cautioned that the UK’s plan to introduce a criminal offence for “recklessly making statements or declarations in tax affairs” may confuse taxpayers and discourage voluntary disclosures.
The concerns were raised in the ICAEW’s formal response to an HMRC consultation on the proposal.
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While the ICAEW said it understood the rationale for aligning direct tax rules with those already used for indirect taxes, it questioned whether the existing indirect tax offence is fit for purpose.
Originally created with customs duties in mind, the offence appears to have been used very rarely in practice and there is a lack of case law showing it has driven compliant behaviour.
Rather than extending the measure, the ICAEW recommended removing the indirect tax offence from the statute book altogether, arguing that this would simplify the tax system and improve consistency.
The ICAEW said it does not support the new proposed offence as many taxpayers and advisers would find the word ‘reckless’ confusing.
It also flagged concerns about how the measure would interact with existing penalty regimes, which already distinguish clearly between careless, deliberate and fraudulent behaviour.
ICAEW senior tax technical manager Richard Jones said: “We are opposed to this measure, as there is considerable uncertainty around the circumstances in which HMRC may believe that a taxpayer or agent has engaged in reckless behaviour, which could reduce the deterrent effect of the offence.
“If the measure were to be introduced, much clearer guidance would be needed so that taxpayers and advisers gain greater clarity on when it would and would not apply.
“The potential severity of the consequences, combined with the uncertainties of scope and potential inconsistencies of application, may mean that advisors and taxpayers conclude that they should limit contact with HMRC, including making voluntary disclosures for fear of a possible criminal investigation, potentially widening the tax gap.
“We recommend that HMRC makes greater or more effective use of its existing powers to bring appropriate prosecutions and civil actions.”
The ACCA recently shared similar concerns on the proposed criminal offence.
