LITRG: Plans to make it easier to criminalise tax mistakes could hit low-income taxpayers
The Low Incomes Tax Reform Group (LITRG), an initiative of the Chartered Institute of Taxation, has warned that an HMRC proposal to make it easier to prosecute taxpayers could have a detrimental impact on low-income unrepresented taxpayers.
In its response to a HMRC consultation1, LITRG raised concerns that HMRC has failed to fully explain why its proposal for a new criminal offence for providing reckless, untrue statements is needed for ‘direct’ taxes like income tax, or how it would decide which cases to prosecute.
At present, HMRC can only seek criminal prosecutions where taxpayers have acted dishonestly. These proposals could make it easier for HMRC to reclassify genuine mistakes as ‘reckless’, meaning cases currently dealt with through civil enforcement could become subject to criminal proceedings.
LITRG says it is unclear how taxpayers could challenge this distinction, and warns that low-income, unrepresented taxpayers could be unintentionally caught out by the plans.
LITRG has called on HMRC not to proceed with the plans in their current form. It does not want to see criminal prosecution used in cases where taxpayer behaviour falls short of dishonesty and has said better safeguards need to be put in place to protect taxpayers should the tax authority go ahead with the plans.
Joanne Walker, LITRG Technical Officer, said:
“We are not convinced that HMRC has made the case for such a wide-ranging and serious measure. The consequences of these proposals are severe. A two-year prison sentence and an unlimited fine are serious and potentially life-changing sanctions to apply to acts that fall short of dishonesty.
“We have a real concern about the effect these plans may have on low-income unrepresented taxpayers. They are least likely to be able to afford professional help, so least likely to be able to defend themselves against accusations they have acted recklessly.
“They are also more vulnerable to being taken advantage of by certain unscrupulous tax advisers who could make false claims for tax relief on their behalf that HMRC could decide to prosecute further down the line.”
Joanne Walker continued:
“A more effective way to ensure compliance with the tax system is to make it easier for taxpayers to access the information they need from HMRC via services that are straightforward to access, easy to use and quick to get an answer from.
“That would be a more engaging way of building trust and improving compliance with the tax system than the threat of criminal punishment.”
Notes
- LITRG’s response to the consultation can be accessed at https://www.litrg.org.uk/sites/default/files/260814_Reckless_untrue_statements.pdf.
- Low Incomes Tax Reform Group
