In its response to the consultation, ICAEW said it understood the consistency argument for bringing the direct taxes regime in line with that for indirect taxes. However, the indirect taxes offence – which originated for and reflects the specific profile of customs duties – appears to have hardly ever been used, raising the question as to whether it is fit for purpose.   

The Institute added that there was a lack of case law demonstrating the effectiveness of this measure driving compliant behaviour in the indirect tax space, and consequently it remained unconvinced that it should be extended to direct taxes. The Institute instead recommended that the government consider removing the indirect taxes offence from the statute book. This would simplify the tax system and deliver greater consistency between direct and indirect taxes.

Furthermore, ICAEW said it did not support the introduction of the government’s proposal as many taxpayers and advisers could find the concept of what is reckless confusing, hence potentially reducing the deterrent effect of the offence.

The measure risked adding complexity in the way it interacted with the existing penalty regimes which make a clear distinction between careless, deliberate and fraudulent behaviour, concepts which are already well understood within the tax profession, and by some taxpayers.

Richard Jones, ICAEW Senior Tax Technical Manager, 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. The examples in the consultation document suggest that the individual concerned has been ‘careless’, rather than ‘reckless’, which demonstrates the uncertainty created by the proposal. 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.”

ENDS

Notes to editors: