New HMRC ‘Reckless Conduct Offence’ for direct taxes

The UK tax compliance landscape continues to evolve, with HM Revenue and Customs (HMRC) consulting on a new criminal offence for making “reckless untrue statements or declarations” in relation to direct taxes, such as income tax, corporation tax, and capital gains tax.

If introduced, the change would bring direct tax offences more closely into line with existing rules for VAT and customs matters and give HMRC an additional route to pursue cases where dishonesty cannot be proven, but reckless behaviour can.

What’s the proposed HMRC reckless conduct offence?

The proposed offence would apply where an individual makes an untrue statement or declaration to HMRC, and does so recklessly.

According to the government consultation, recklessness would involve being aware of a risk that information may be inaccurate but proceeding without taking reasonable steps to verify the position.

This refers to direct taxes, which includes

• Income tax
• Corporation tax
• Capital gains tax
• National Insurance contributions
• Statutory payments
• Inheritance tax
• Student loans
• Stamp taxes

Importantly, this is different from an innocent mistake. The consultation makes it clear the intention’s not to criminalise genuine errors, but to target situations where taxpayers or tax advisors ignore warning signs, fail to carry out appropriate checks or submit information despite recognising there may be a problem.

Examples for directors and shareholders

The proposal arrives at a time when HMRC’s expanding the amount of information it receives and the ways it can analyse taxpayer data.

For example, directors and shareholders of close companies are already dealing with enhanced dividend reporting requirements. From the 2025/26 tax year, dividend income received from individual close companies must be disclosed separately, together with additional company and shareholding information. HMRC’s stated that this additional reporting will help it better understand owner-managed businesses and target communications and compliance activity.

At the same time, directors’ loan accounts – particularly overdrawn directors’ loan accounts – remain an area of frequent HMRC scrutiny.

Overdrawn loan accounts can trigger additional tax charges, benefit-in-kind (BIK) implications and compliance obligations if not carefully managed.

Viewed together, these developments highlight HMRC’s increasing focus on compliance, transparency and accurate tax reporting.

Common tax compliance risks for owner-managed businesses

Many business owners quite rightly focus on running and growing their businesses rather than tax administration. However, areas that may once have attracted limited attention can now create increased compliance risk – and that’s a price no business owner wants to pay.

Examples may include:

• Dividend payments that are poorly documented or unsupported by appropriate paperwork
• Shareholding arrangements that have evolved over time without regular review
• Directors’ loan accounts that become overdrawn and are not monitored throughout the year
• Claims for reliefs or deductions where supporting evidence is incomplete
• Tax returns prepared using estimates or assumptions that haven’t been properly checked

These situations may not automatically create a problem. However, they illustrate why having robust processes, accurate records and access to specialist advice is increasingly important.

Prevention’s far better than an HMRC investigation

For most businesses, the key takeaway isn’t to become concerned about criminal prosecutions. Rather, it’s to recognise that tax compliance standards are continuing to rise.

Having regular reviews of remuneration strategies, maintaining dividend documentation, monitoring directors’ loan accounts and ensuring records are complete can significantly reduce the risk of future challenges. Where uncertainty exists, seeking professional advice before filing a return’s almost always preferable to explaining an issue once HMRC’s opened an enquiry.

This also underlines the value of tax fee protection and fee protection services. Even where taxpayers have acted correctly, responding to an HMRC enquiry or investigation can be time-consuming, disruptive and potentially costly. And so having access to experienced advisors and support when issues arise can provide valuable peace of mind.

What should business owners do next?

The proposed reckless conduct offence may still be under consultation, but its message is already clear. HMRC expects greater accuracy, stronger governance and greater transparency from taxpayers and businesses.

Against a backdrop of enhanced dividend disclosures, increased reporting obligations and ongoing scrutiny of directors’ loan accounts, now’s the ideal time to review your compliance processes and ensure your tax affairs are properly documented and well managed.

If you’re unsure whether your existing arrangements remain appropriate, speaking to our team today could help avoid unnecessary issues tomorrow.

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