Andrew Park runs the rule over HMRC’s proposed criminal offence for making recklessly untrue direct tax statements.
Further to a consultation which closed for responses on 16 August 2026, HMRC proposes to create a new criminal offence for direct taxes, modelled on an existing VAT offence, under which a taxpayer, agent or other person could be prosecuted for knowingly or recklessly providing information that is untrue. If legislated as proposed, the measure will extend HMRC’s scope for criminal prosecution on direct tax matters beyond cases of dishonesty and into conduct where deliberate intent cannot be demonstrated.
HMRC argues that the measure will strengthen its ability to tackle non-compliance and deliberate wrongdoing and will be a further step to harmonising its powers across direct and indirect taxes. However, the measure is highly controversial and widely opposed – including by many of the professional bodies.
Recent Freedom of Information responses obtained by the Contentious Tax Group (CTG) of accounting, legal and other professionals add a further dimension to the debate, further heightening questions about proportionality and the justification for legislative expansion – as well as HMRC’s commitment to transparency in the formulation of policy.
The existing VAT offence
Under the existing VAT offence at s72(3)(b) of the Value Added Tax Act 1994, it is a criminal offence for a person to make a statement or furnish information which is known to be false in a material particular, or recklessly make a statement or furnish information
which is false in a material particular, for VAT purposes.
Unlike conventional fraud offences, s72(3)(b) does not require proof of deliberate intent to underpay tax: it is sufficient that a person knowingly, or recklessly, makes a materially false statement when furnishing information for VAT purposes.
HMRC’s consultation proposes extending similar criminal sanctions of unlimited fines or up two years in prison to direct taxes, including income tax, corporation tax and capital gains tax. The proposal would potentially criminalise not only taxpayers providing incorrect information but also tax agents and others assisting them in their interactions with HMRC.
Why is this controversial?
Concerns are mainly focused on the reckless limb of the proposal and include:
- Criminalisation of honest errors
Many commentators are concerned that the concept of recklessness is inherently less clear-cut than deliberate dishonesty. While HMRC has stated that the power would be targeted at serious cases, the statutory test would not require proof of fraud and it is not at all clear what the safeguards would be in practice.
Tax compliance frequently involves difficult questions of fact, valuation, interpretation and judgement. Advisers therefore fear that extending criminal sanctions beyond cases involving dishonesty risks creating uncertainty regarding where the boundary lies between negligence, carelessness and criminal recklessness.
- Powers already exist
Critics also point out that HMRC already possesses extensive civil and criminal powers. Against that backdrop, many have questioned what practical enforcement gap the new offence is intended to fill.
For direct taxes, HMRC can impose substantial penalties for careless, deliberate and deliberate-concealed inaccuracies. It can assess tax, charge interest, publish details of deliberate defaulters and, where appropriate, pursue prosecution for cheating the public revenue, fraud by false representation and a raft of other well established criminal offences.
- Lack of evidence to support the need
Whenever a new criminal offence is proposed, there is an expectation that government will identify a clear problem that existing legislation cannot address. In this case, critics have argued that HMRC has not demonstrated either a history of failed prosecutions or a pattern of behaviour escaping existing sanctions.
FOI request by CTG
The Contentious Tax Group submitted an FOI request to HMRC in July 2026. We asked HMRC to confirm for each of the last six HMRC reporting years to 31 March 2026 or by tax year to 5 April 2026 at HMRC’s preference:
1. The number of attempted prosecutions brought under s72(3)(b) Value Added Tax Act 1994 against persons thought to have recklessly made false statements.
2. The number of successful convictions of said persons under s72(3)(b) Value Added Tax Act 1994.
3. Where successful prosecutions were brought, the breakdown of sentence type – i.e. whether penalties, imprisonment or both.
In response, HMRC expressly confirmed that it held the prosecution data requested but refused disclosure under S35(1) (a) FOIA and stated: “The information sought in your request is data about the criminal offence of making reckless untrue statements for indirect tax matters.
This data forms a key part of the evidence base for the proposal to introduce an equivalent offence for direct taxes, which is subject to an HMRC consultation… The Government needs a ‘safe space’ in which it is able to investigate, prepare and formulate policy away from external interference and distraction… The information sought forms a key part of the evidence base for, and so is inextricably linked to, the proposal to introduce a new equivalent offence for direct taxes. As such, releasing the information sought would be likely to have a detrimental impact on the ongoing formulation and development of policy, because it would be likely to distract from the proposal in a way that would be adverse to the ‘safe space’ and the engagement of stakeholders… In this instance, the need for a safe space is of particular weight because the issue is still live.”
Separate FOI request to CPS
Readers can draw their own conclusions about what HMRC’s response might suggest about HMRC’s commitment to transparency and open government. Rather than appeal the HMRC refusal to provide the information, for which we would likely have had strong grounds, we then submitted a further FOI request to the Crown Prosecution Service (CPS) asking for the same information.
The CPS responded quickly and was much more forthcoming: “[The CPS] does not hold information in scope of your request as there have been no offences, charged by way of s72(3)(b) VAT Act 1994 and finalised in the last six years ending March 2026.”
In other words, whilst the CPS response does not show that the offence was never considered, investigated or threatened, it does show that the power did not result in a single prosecution being brought to fruition during the six reporting years ending 31 March 2026 under s72(3)(b) VATA 1994. That came as no surprise to many of us – indeed we sought the information with that expectation.
Important compliance tool
HMRC argued in its consultation that extending the offence would provide an important compliance tool. However, if an existing criminal offence has not been prosecuted for at least six years, it naturally begs the question – is there really an enforcement gap?
If the VAT equivalent has not resulted in a prosecution in recent years, it becomes difficult to argue that widespread offending behaviour is currently escaping sanction because of the absence of such a power in the direct tax regime.
The CPS data does not prove that the existing VAT offence lacks any value at all: it may have a deterrent effect, and moreover HMRC may argue that for reasons as yet unclear direct tax compliance might be more in need of the measure. However, before Parliament extends the offence across the direct tax system, the HMRC should explain clearly why existing civil and criminal powers are insufficient, and in what circumstances the new offence is expected to be used.
Without compelling and transparent justification and appropriate safeguards, there is a risk that the proposal will be perceived less as a necessary prosecutorial tool and more as an additional source of leverage in compliance enquiries – and perhaps even, in rare circumstances, as a means to bring criminal sanctions by the back door against parties suspected of dishonesty but against whom dishonesty could not be proved in a criminal court.
If the need for the new legislation cannot be demonstrated and if consistency across the taxes is indeed an important imperative, perhaps HMRC should instead consider proposing to Parliament that it should relinquish its existing powers with regard to VAT?
- Andrew Park, Tax Investigations Partner, Price Bailey