Introducing a criminal offence for making reckless untrue statements or declarations in direct tax

 

1. Peters & Peters welcomes the opportunity to respond to HMRC’s consultation on the proposed introduction of a criminal offence of making reckless untrue statements or declarations in relation to direct tax matters.

 

2. The criminal law plays an important role in protecting the integrity of the tax system. The creation of new criminal offences, however, requires clear justification. Criminal liability should only be extended where there is compelling evidence that existing criminal offences and civil sanctions do not adequately address conduct that Parliament properly considers sufficiently culpable to merit criminal sanction.

 

3. In our view, the consultation has not established that case. Whilst it identifies circumstances in which dishonesty may be difficult to prove, it provides limited evidence that this reflects a genuine gap in the existing legal framework rather than the ordinary operation of established evidential thresholds. The inability to prove the mental element of an existing offence should not, without more, justify the creation of a new criminal offence.

 

4. Nor are we persuaded that alignment between the direct and indirect tax regimes is, of itself, a sufficient justification for extending the criminal law. Direct taxes apply to a substantially broader and more diverse population than the existing indirect tax offences, including millions of individuals who manage their own tax affairs without professional assistance and often in areas of considerable legal and factual complexity.

 

5. If the Government nevertheless decides to proceed, the legislation should include clear statutory safeguards and should be accompanied by appropriate guidance. These should include a precisely defined scope, an appropriate materiality requirement, clear guidance on the relationship between the offence and HMRC’s existing civil compliance and disclosure processes, and published prosecution criteria to promote consistency and proportionality.

 

6. Fundamentally, Parliament should be provided with a fuller evidential basis before being invited to legislate. That evidence should explain the nature and extent of the perceived enforcement gap, why existing powers are inadequate, the anticipated impact on taxpayer behaviour and compliance, and the practical implications for HMRC, the criminal justice system and the wider public interest.

 

Question 1: Do you agree that a criminal offence for making reckless untrue statements or declarations should be introduced for all direct tax matters? And if not applied to all direct tax matters, why not? Please give reasons for your response.

 

7. We do not consider that, on the evidence presently set out in the consultation, HMRC has established the case for introducing a new criminal offence applying across all direct tax matters.

 

8. The creation of a criminal offence represents a significant extension of the criminal law and should therefore be supported by clear evidence that the existing legal framework is insufficient to address a clearly identified category of culpable conduct. Whilst the consultation asserts that an enforcement gap exists, it provides limited evidence as to the scale of that gap, the number or type of cases affected, or why existing criminal offences and civil sanctions cannot adequately address the conduct in question. Before Parliament is invited to create a new criminal offence, it should be provided with a fuller evidential basis demonstrating both the necessity and proportionality of legislative intervention.

 

9. The principal policy justification advanced in the consultation is that prosecutors should have available an offence of recklessness where dishonesty cannot be proved. We do not consider that this is, without more, a sufficient basis upon which to extend criminal liability. The inability to establish the mental element of an existing criminal offence does not necessarily demonstrate a deficiency in the law. Rather, it may simply reflect the proper operation of the evidential safeguards that Parliament has attached to offences requiring proof of dishonesty. Before creating a new offence, the Government should demonstrate that there exists a distinct category of conduct that is sufficiently blameworthy to justify criminal sanction, but which is not already adequately addressed by the existing civil and criminal framework. The consultation does not presently establish that proposition.

 

10. Nor do we consider that the objective of aligning the direct and indirect tax regimes, whilst a relevant consideration, provides a compelling justification in its own right. Legislative consistency is generally desirable, but consistency should follow from equivalent policy considerations rather than operate as an independent reason for extending criminal liability. Direct taxes apply to a substantially broader and more diverse population than VAT and customs duties, including millions of individuals who manage their own tax affairs without professional assistance and often in areas of considerable legal and factual complexity. HMRC has not explained why the policy considerations underpinning the existing indirect tax offences apply with equal force in the direct tax context. Nor does the consultation provide evidence as to the practical operation of the existing reckless offences in the indirect tax regime. In particular, it does not identify the number of prosecutions or convictions under section 72(3) VATA or section 167(1) CEMA, the circumstances in which those offences have proved necessary as alternatives to dishonesty-based offences, or evidence that their availability has materially improved enforcement outcomes. If experience of the indirect tax regime is relied upon as justification for extending criminal liability to direct tax, that experience should form part of the evidential basis for the proposal.

 

11. The proposed scope of the offence nevertheless requires an important qualification. Both of the existing indirect tax offences upon which the consultation relies require the relevant statement to be false or untrue “in a material particular”. If the proposed direct tax offence is intended to align the direct and indirect regimes, the same materiality requirement should apply.

 

12. Criminal liability should therefore arise only where the person is reckless as to whether the statement or declaration is untrue in a material particular. That is not the same as imposing a de minimis threshold based upon a particular amount of tax loss. Rather, it ensures that an immaterial inaccuracy does not attract criminal liability merely because the maker was aware of a risk that some minor aspect of the statement might be incorrect. Given the consequences of criminal conviction, the scope of the offence should be sufficiently certain to enable taxpayers and advisers to understand the circumstances in which criminal liability may arise.

 

13. The consultation also gives limited consideration to whether a new criminal offence is the most proportionate response. HMRC already possesses an extensive range of civil penalties and criminal offences, with the existing civil penalty regime distinguishing between careless behaviour, deliberate behaviour and deliberate behaviour involving concealment. The proposal does not explain why those existing powers cannot adequately address the conduct identified or whether the policy objectives could instead be achieved through targeted reform of the existing civil regime. It must also be remembered that HMRC has a policy of reserving criminal investigation and prosecution for situations where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate. We suggest that this policy alone militates against the introduction of a further criminal offence that can be committed with a state of mind short of dishonesty. It is also potentially questionable what additional deterrent effect the proposed offence would achieve in relation to those who consciously identify a risk but nevertheless decide to take it. The existence of civil mechanisms available to HMRC and their use to deal even with deliberate conduct makes it difficult to understand in what circumstances reckless conduct falling short of dishonesty would nevertheless be such that only criminal sanction was appropriate. As mentioned above, the consultation relies principally on two comparators (section 72(3) VATA and section 167(1) CEMA). It says aligning direct tax with these offences would deter non-compliance and describes the CEMA sentencing level as maintaining a deterrent effect, but it does not cite statistics, evaluation, behavioural research, prosecution rates, before/after evidence or other analysis demonstrating that either indirect tax offence has in fact deterred non-compliance.

 

14. The wider implications of introducing a new criminal offence also merit fuller consideration. Criminal investigations and prosecutions place significant demands upon HMRC, the Crown Prosecution Service, the criminal courts and the wider criminal justice system. Whilst the consultation states that the proposal is not intended as a revenue raising measure, it provides little assessment of the anticipated number of investigations or prosecutions, the associated public expenditure, or the wider public benefit expected to result. Those are matters to which Parliament is properly entitled before deciding whether the creation of a new criminal offence is justified.

 

15. Finally, the consultation repeatedly describes the proposed offence as a lesser alternative to offences requiring proof of dishonesty. Whilst that may be the present policy intention, it does not explain whether the offence is expected to operate only as an alternative charge or whether it may also be prosecuted as a standalone offence where no allegation of dishonesty is pursued. Once enacted, prosecutorial practice and charging policy may evolve over time. If the intended role of the offence is genuinely limited, consideration should be given to reflecting that limitation in legislation, formal prosecution guidance or published charging criteria to promote consistency and reduce the risk of the offence expanding beyond its intended purpose.

 

16. For those reasons, we do not consider that the consultation presently establishes the case for introducing a criminal offence applying across all direct tax matters.

 

Question 2: What impacts do you foresee for taxpayers, advisers, and other stakeholders if an offence for making reckless untrue statements or declarations is introduced for direct tax?

 

17. The introduction of a criminal offence for making reckless untrue statements or declarations is likely to have significant practical consequences for taxpayers, professional advisers and HMRC. Whilst the prospect of criminal sanction may
encourage greater care in some circumstances, its overall impact will depend upon the clarity with which the offence is defined, and the confidence taxpayers have that it will be applied consistently and proportionately.

 

18. For taxpayers, the proposal is likely to increase uncertainty, particularly in areas of tax law involving complex factual assessments or genuine questions of legal interpretation. Direct taxes affect a broad range of individuals, many of whom manage their own tax affairs without professional assistance. The distinction between carelessness (an inaccuracy arising from a failure to take reasonable care) and recklessness (awareness of a risk that the statement is untrue followed by an unreasonable decision to proceed notwithstanding that risk) may nevertheless be difficult to apply to the facts of particular tax cases. The risk is that taxpayers may become reluctant to adopt legitimate technical positions or engage constructively with areas of legal uncertainty, even where they have acted honestly and sought to comply with their obligations. That risk is particularly significant given the inherent complexity of the UK tax system – widely regarded as one of the most complex in the world – and the frequency with which tax liabilities depend upon difficult questions of fact, valuation or legal interpretation. Criminalising conduct falling short of dishonesty may affect behaviour even among taxpayers genuinely seeking to comply.

 

19. The proposal is also likely to increase compliance costs. Individuals and businesses who might previously have dealt with routine tax matters themselves may feel obliged to obtain professional advice in circumstances where they would not otherwise have done so. Whilst professional advice will often improve compliance, the additional cost may be disproportionate, particularly where relatively modest amounts of tax are involved, or the relevant legal issues are not unusually complex.

 

20. Professional advisers are also likely to adapt their approach. Greater emphasis is likely to be placed on documenting instructions, verifying the factual basis of advice and recording the reasons for technical conclusions. Whilst robust record keeping is generally desirable, these additional requirements are likely to increase costs for clients and administrative burdens for advisers. There is also a risk that advisers adopt an unduly cautious approach in areas of genuine legal uncertainty, discouraging clients from advancing positions that are properly arguable in law.

 

21. The proposal may also affect the way taxpayers and advisers engage with HMRC during compliance interventions. Where there is uncertainty as to the circumstances in which criminal liability may arise, discussions that might previously have been relatively open may become more guarded and formal. That is unlikely to assist the efficient resolution of enquiries and may be inconsistent with HMRC’s wider objective of encouraging cooperative compliance.

 

22. The consequences of a criminal conviction extend beyond any sentence imposed by the criminal courts. A conviction may have significant implications for employment, access to regulated sectors, the availability of banking services, reputation and, in some cases, international travel or immigration. Those wider consequences are relevant when assessing the proportionality of extending criminal liability into an area that is presently addressed, in many cases, through civil penalties.

 

23. Greater clarity would also assist consultees in assessing the likely impact of the proposal. The consultation refers to oral statements and to representations inferred from a person’s conduct but provides limited explanation of the circumstances in which such conduct might attract criminal liability. Nor is it clear whether the proposal is principally directed at organised tax fraud (as an alternative count where dishonesty cannot be proved), persistent non-compliance, professional advisers or the wider population of taxpayers. Greater clarity regarding the intended scope and target of the proposal would enable consultees to assess its likely impact more accurately.

 

24. Overall, the practical impact of the proposal will depend less upon the existence of a new offence than upon the certainty, precision and proportionality with which it is defined and applied. A narrowly drawn offence, directed at genuinely culpable conduct and supported by clear statutory drafting and operational guidance, is less likely to produce unintended consequences than one whose boundaries remain uncertain.

 

Question 3: Are there particular types of behaviour or circumstances that you believe should or should not fall within the scope of the new offence? Please give reasons for your response.

 

25. If Parliament nevertheless decides to introduce a new criminal offence, it should be accompanied by clear statutory safeguards to ensure that criminal liability remains confined to genuinely culpable conduct. Given the seriousness of a criminal conviction, the essential elements of the offence should be defined in legislation with sufficient precision to distinguish criminal recklessness from conduct more appropriately addressed through HMRC’s existing civil compliance framework. In addition, HMRC’s existing criminal investigation policy should be amended, if the offence is introduced, to identify the circumstances in which conduct amounting to recklessness rather than dishonesty will nevertheless be regarded as sufficiently serious to justify criminal investigation and prosecution rather than civil treatment.

 

26. First, the offence should require subjective recklessness. Criminal liability should be confined to conduct demonstrating a conscious and unjustifiable disregard of an obvious risk that a material statement or declaration is untrue. The test should be subjective: the person must actually have been aware of the relevant risk, and it should not be sufficient that a reasonable person would have been aware of it or that the person ought to have been aware of it. It should not extend to errors arising through misunderstanding, oversight, inadvertence or the complexity of the tax system. Criminal liability should remain reserved for conduct that Parliament considers sufficiently blameworthy to warrant criminal sanction.

 

27. Secondly, the offence should include an express requirement that the statement or declaration be untrue in a material particular. Criminal liability should not arise from an immaterial inaccuracy merely because the maker was aware that some minor aspect of a statement might be incorrect. Rather, the offence should require that the statement or declaration was material to the assessment, collection or administration of tax, or created a realistic risk of material prejudice to the Revenue. Such a requirement would help ensure that the offence remains directed at conduct capable of causing genuine harm rather than technical or inconsequential inaccuracies.

 

28. Thirdly, the offence should not extend to genuine disputes concerning the interpretation or application of tax legislation. Many areas of direct tax law involve complex statutory provisions on which reasonable views may differ, with the correct legal position becoming clear only after judicial determination. A taxpayer should not be exposed to criminal liability merely because a reasonably arguable interpretation is ultimately rejected by HMRC or the courts. Criminal liability should be directed at culpable factual misstatements or conscious disregard of risk, rather than legitimate legal disagreement.

 

29. Fourthly, accompanying guidance should address the significance of professional advice. Where a taxpayer has provided complete and accurate information to a competent adviser and acted in accordance with that advice, that will ordinarily be highly relevant to whether the taxpayer was aware of a risk that the relevant statement was untrue and whether it was unreasonable to proceed. Reliance upon professional advice should not constitute an absolute defence, but clear guidance on its relevance would provide useful reassurance and promote consistency in investigation and charging decisions.

 

30. Similarly, taxpayers who have reasonably relied upon published HMRC guidance should not ordinarily be exposed to criminal liability where that guidance is subsequently amended or found to be incorrect. The effective administration of the tax system depends upon taxpayers being able to place reasonable reliance upon HMRC’s published guidance when seeking to comply with their obligations.

 

31. The legislation should also avoid discouraging voluntary compliance. Where a taxpayer identifies an error after making a statement or declaration and takes prompt and genuine steps to correct it, that conduct should ordinarily be distinguished from a case in which an individual knowingly allows an inaccurate statement to remain uncorrected. The legislation should encourage the correction of genuine mistakes rather than create disincentives to voluntary disclosure.

 

32. Finally, if oral and implied statements are to fall within the offence, particular consideration should be given to the evidential and operational safeguards applicable to them. An informal oral explanation given during an HMRC enquiry is materially different from a formal declaration in a tax return, not least because disputes may subsequently arise as to the precise words used, their context and the qualification with which they were expressed. Guidance should therefore identify the circumstances in which HMRC would ordinarily consider criminal investigation appropriate in respect of oral or implied statements.

 

33. For these reasons, if the Government proceeds with the proposed offence, we consider that its scope should be defined with sufficient precision in primary legislation. The clearer the statutory boundaries of the offence, the more likely it is to achieve its stated objectives whilst maintaining confidence in the fairness and predictability of the tax system.

 

Question 4: We are interested to hear whether consultees find ‘statement’ or ‘declaration’ easier to understand. Please explain your answer and provide any alternatives.

 

34. We do not consider that the principal issue is whether the words ‘statement’ or ‘declaration’ are more readily understood in ordinary language. The more fundamental question is whether the legislation defines, with sufficient precision, the conduct intended to attract criminal liability. Given the potentially serious consequences of conviction, Parliament should define the prohibited conduct clearly in legislation rather than leave its scope to be inferred from broad terminology or developed through guidance and prosecutorial practice. Taxpayers should be able to ascertain, with reasonable certainty, whether particular conduct is capable of giving rise to criminal liability.

 

35. Of the two terms, we consider ‘declaration’ to be the clearer and narrower. It ordinarily denotes a formal assertion or confirmation made as part of a prescribed statutory or administrative process, such as a declaration accompanying a tax return or other document submitted to HMRC. Taxpayers are already familiar with this terminology and the legal significance commonly attached to it.

 

36. By contrast, the consultation proposes that ‘statement’ should encompass written statements, oral statements and representations inferred from a person’s conduct. In doing so, the concept extends beyond the ordinary understanding of a statement and instead encompasses a potentially wide range of conduct from which HMRC may invite a court to infer that a representation has been made. That breadth gives rise to considerable uncertainty. In particular, it is unclear what conduct is intended to constitute an implied representation, where the boundaries of that concept lie, or what objective criteria would distinguish conduct capable of attracting criminal liability from ordinary interactions with HMRC. Broad concepts of representation are not unknown to the criminal law. The significance here, however, is that the proposed offence combines a potentially wide concept of the actus reus with a mental element falling short of dishonesty. Where criminal liability is extended in that way, it becomes correspondingly important that the remaining elements of the offence (including materiality and the required connection between the statement and the taxpayer’s direct tax affairs) are drawn with sufficient precision.

 

37. Similar concerns arise in relation to oral statements. The consultation does not explain the circumstances in which an oral statement may give rise to criminal liability, the evidential safeguards that would apply, or whether the proposal is intended to extend beyond formal compliance or investigative processes. If oral statements are intended to fall within the scope of the offence, clear guidance should address the circumstances in which HMRC would ordinarily consider criminal investigation and prosecution appropriate, together with the evidential safeguards applicable to such cases.

 

38. We do not consider that alternative terminology is required. Rather, once Parliament has clearly defined the conduct intended to constitute the offence, the appropriate terminology is likely to follow. Greater certainty will be achieved through precise statutory drafting than through the selection of one broad descriptive term over another. That approach would better promote legal certainty, consistent enforcement and proportionality.

 

Question 5: How might the introduction of a reckless untrue statements or declarations offence affect compliance behaviour among individuals and businesses?

 

39. The introduction of a criminal offence of making reckless untrue statements or declarations is likely to influence taxpayer behaviour. Whether it improves compliance, however, will depend less upon the existence of the offence itself than upon the clarity of its scope and the confidence taxpayers have that it will be applied consistently and proportionately. A clearly defined offence, directed at genuinely culpable conduct, may encourage greater care in the preparation of tax returns and communications with HMRC. Conversely, uncertainty regarding the scope of criminal liability risks producing behavioural consequences that are inconsistent with the policy objective of improving compliance. There is also a potential tension between the proposal and HMRC’s established approach of reserving criminal investigation for cases in which a strong deterrent message is required, or the conduct is such that only a criminal sanction is appropriate. If even deliberate inaccuracies may ordinarily be addressed through the civil regime, the Government should explain the circumstances in which reckless conduct falling short of dishonesty is expected to justify criminal investigation.

 

40. Although recklessness is an established concept in the criminal law, its application in the tax context may nevertheless create difficult boundary questions, particularly in distinguishing conscious risk-taking from a failure to take reasonable care. Uncertainty as to how that distinction will be applied in practice may cause taxpayers and businesses to become increasingly reluctant to adopt legitimate technical positions in areas of legal uncertainty. Greater caution does not necessarily equate to greater compliance. Rather, it may discourage taxpayers from advancing reasonably arguable positions or engaging openly with complex areas of tax law for fear that an adverse outcome could subsequently be characterised as criminally reckless. As mentioned above, the test of recklessness should remain a subjective one, requiring proof that the person was in fact aware of the relevant risk. It should not be enough to show that the risk would have been apparent to a reasonable person or was one of which the person ought to have been aware.

 

41. Similar considerations arise during HMRC enquiries. If taxpayers or their advisers perceive that oral explanations or other communications may later be relied upon in criminal proceedings, interactions with HMRC are likely to become more formal and guarded. That would be contrary to HMRC’s longstanding objective of encouraging cooperative compliance and may make the efficient resolution of compliance interventions more difficult.

 

42. The consultation also leaves uncertainty regarding the interaction between the proposed offence and HMRC’s existing disclosure facilities. It does not identify an appropriate route by which taxpayers who reasonably consider that they may have acted recklessly, but not deliberately, are expected to regularise their position. The Contractual Disclosure Facility under Code of Practice 9 is predicated upon an admission of deliberate behaviour and provides an undertaking against criminal investigation in relation to the disclosed conduct. By contrast, Code of Practice 8 is a civil investigative process and does not provide comparable protection. The consultation does not explain whether the existing disclosure routes are considered adequate for cases involving the proposed offence or whether an alternative mechanism is envisaged. That uncertainty risks discouraging early and voluntary disclosure, contrary to HMRC’s wider objective of promoting cooperative compliance.

 

43. Overall, the behavioural impact of the proposal will depend upon the precision of the legislation, the availability of clear operational guidance and the way in which the offence operates alongside HMRC’s existing compliance and disclosure framework. A narrowly drawn offence, supported by transparent charging criteria and coherent disclosure arrangements, is more likely to reinforce confidence in the tax system than one whose boundaries remain uncertain.

 

Question 6: What challenges or risks do you foresee in implementing this change, and how might they be mitigated?

 

44. The successful implementation of any new criminal offence will depend upon more than the wording of the legislation. It will require a coherent framework governing how the offence is investigated, prosecuted and integrated with HMRC’s existing civil compliance framework. Without appropriate safeguards, there is a risk that uncertainty will undermine both taxpayer confidence and the effective operation of the new offence.

 

45. The principal implementation challenge will be ensuring that the established criminal law concept of recklessness can be applied consistently in the tax context and distinguished in practice from carelessness. The statutory offence should identify its other elements with precision, while operational and prosecution guidance should explain how HMRC intends to distinguish cases suitable for criminal investigation from those appropriately addressed through the civil compliance regime. The test should be subjective, requiring actual awareness of the relevant risk rather than a risk the person reasonably ought to have appreciated.

 

46. A related challenge is the risk of inconsistent decision making. In the absence of clear statutory boundaries and transparent prosecution policy, similar conduct may be treated differently by different compliance teams, investigators or prosecutors. There is also a risk of inconsistency in deciding whether a case should be addressed through civil penalties, civil investigation or criminal prosecution. That risk could be mitigated by published prosecution guidance explaining the circumstances in which criminal investigation and prosecution will ordinarily be appropriate, together with the factors relevant to those decisions. Such guidance might include, for example, the materiality of the inaccuracy, the amount of tax at risk, the duration or repetition of the conduct, any evidence of concealment, previous compliance history, and the taxpayer’s response upon discovering an error. Whilst such guidance cannot fetter prosecutorial discretion, it would promote consistency, transparency and public confidence.

 

47. As mentioned in our response to Question 5, consideration should also be given to how the proposed offence will operate alongside HMRC’s existing civil compliance and disclosure processes. Clear operational guidance on the relationship between the new offence, the civil penalty regime and HMRC’s existing disclosure facilities would assist taxpayers and advisers in understanding how to engage constructively with HMRC where concerns arise regarding the accuracy of information previously provided. Greater clarity would also reduce the risk of defensive behaviour that may undermine cooperative compliance.

 

48. The Government should also clarify the interaction between the proposed offence and existing corporate economic crime offences, including the offences of failure to prevent the criminal facilitation of tax evasion under Part 3 of the Criminal Finances Act 2017. As presently understood, conduct amounting only to the proposed reckless statement offence would not constitute the underlying criminal tax evasion or criminal facilitation required by that regime. That position should nevertheless be made clear so that the creation of the new offence does not generate uncertainty as to the scope of organisations’ existing prevention obligations.

 

49. Finally, the practical implications of implementation require fuller assessment. Criminal investigations and prosecutions require specialist expertise and place demands upon HMRC, the Crown Prosecution Service and the wider criminal justice system. Before introducing a new offence, Parliament should be provided with a clearer assessment of the anticipated operational impact and the resources likely to be required. If the proposal proceeds, consideration should also be given to undertaking a formal post implementation review to assess whether the offence has achieved its intended objectives, has been applied consistently and proportionately, and has given rise to any unintended consequences.

 

Question 7: Do you have any other comments or suggestions regarding the proposed change?

 

50. We have two overarching observations which apply throughout this response.

 

51. First, we consider that the consultation would benefit from a fuller evidential basis before Parliament is invited to legislate. Whilst the proposal identifies what is said to be an inconsistency between the direct and indirect tax regimes, it provides limited evidence of the nature or extent of the perceived enforcement gap, the number or type of cases that cannot presently be addressed through existing criminal offences or civil penalties, or why those existing powers are inadequate. The creation of a new criminal offence represents a significant extension of the criminal law and should therefore be supported by clear evidence demonstrating both its necessity and its likely effectiveness.

 

52. Secondly, greater emphasis should be placed upon legislative certainty. Throughout this response we have identified a number of matters that remain unclear, including the scope of the proposed offence, the application in the tax context of the distinction between careless and reckless conduct, the interaction with HMRC’s existing civil compliance and disclosure processes, and the circumstances in which criminal investigation and prosecution will ordinarily be appropriate. These matters go to the substance of the proposed offence and should, wherever possible, be addressed through primary legislation or published prosecution guidance rather than being left to operational practice or evolving policy following enactment.

 

53. More generally, the legitimacy of any new criminal offence will depend not only upon the conduct it criminalises but also upon the confidence of taxpayers and advisers that it will be applied consistently, transparently and proportionately. The clearer the statutory framework and accompanying enforcement policy, the more likely the proposal is to achieve its stated objectives whilst maintaining public confidence in the fairness and predictability of the tax system.

 

Question 8: Do you believe this option best achieves proportionality and deterrence for a direct tax recklessness offence, and why?

 

54. The consultation does not presently provide a sufficient evidential basis to conclude that the proposed maximum sentence appropriately achieves either proportionality or deterrence.

 

55. Proportionality requires an assessment of the seriousness of the conduct Parliament proposes to criminalise and whether the available sanctions are commensurate with that conduct. The consultation explains that the two-year maximum has been selected principally to align the offence with section 167(1) CEMA and to reflect its position as a step below dishonesty. That provides a comparator, but not necessarily a sufficient justification for the sentencing level proposed. In particular, the consultation does not examine the sentencing experience under section 167(1), the frequency with which custodial sentences are imposed for reckless conduct, or whether the materially broader population affected by direct taxation gives rise to different proportionality considerations.

 

56. The consultation also provides limited evidence regarding deterrence, including for equivalent indirect tax recklessness offences. It does not explain why the proposed maximum sentence is expected to influence taxpayer behaviour more effectively than the existing civil and criminal framework, nor does it identify any evidence that the current sentencing regime has failed to achieve an appropriate deterrent effect. Without that analysis, it is difficult to assess whether the proposed sanction is likely to produce the behavioural changes upon which the proposal is based.

 

57. The assessment of proportionality should also extend beyond the maximum custodial sentence. As noted in our response to Question 2, a criminal conviction may have significant consequences extending beyond the sentence imposed by the court, including professional disciplinary action, banking relationships, reputational damage, restrictions affecting regulated professions and potential implications for international travel or immigration. Those wider consequences form part of the overall impact of criminalisation and should therefore be taken into account when assessing whether the proposed sentencing framework is proportionate.

 

58. If the Government nevertheless decides to proceed with the proposed offence, Parliament should be provided with a fuller evidence base explaining why the proposed maximum sentence is appropriate, how it is expected to improve deterrence, and why lesser sanctions would not adequately achieve the policy objectives.

 

Question 9: Do you agree that fines should be unlimited on indictment? If not, what alternative would you propose and why?

 

59. Yes, in principle, provided that the proposed offence is narrowly defined and accompanied by appropriate safeguards to ensure that criminal liability remains confined to genuinely culpable conduct.

 

60. We do not object in principle to the availability of an unlimited fine on indictment. The courts are well accustomed to imposing financial penalties that are proportionate to the seriousness of the offending and the circumstances of the offender. The absence of a statutory financial limit is therefore not, in itself, objectionable.

 

61. The proportionality of any financial penalty will, however, depend upon the scope and operation of the proposed offence. If Parliament decides to introduce a new offence carrying potentially unlimited financial penalties, it is particularly important that the conduct capable of giving rise to criminal liability is clearly and precisely defined. The narrower and more certain the statutory boundaries of the offence, the more readily the courts will be able to impose sanctions that are fair and proportionate.

 

62. The cumulative consequences of conviction should also be taken into account. A financial penalty will ordinarily be imposed alongside liability for the underlying tax, statutory interest and, where applicable, civil penalties. In addition, as noted in our response to Question 2 and elsewhere, a criminal conviction may have significant wider consequences, including professional regulatory implications, reputational damage and, in some cases, implications for international travel or immigration. The cumulative effect of those financial and non-financial consequences should form part of any assessment of proportionality.

 

63. If the proposed offence is introduced, clear sentencing guidance will be important in promoting consistency and proportionality in the level of financial penalties imposed. Consideration should also be given to reviewing the operation of the sentencing framework as part of any post implementation review of the new offence