Three days ago, buried inside HMRC’s 40-measure Tax Update 2026 package published on 23 June 2026, was a proposal that every CFO in the UK needs to read carefully. The government is consulting on introducing a new criminal offence for making reckless untrue statements in direct tax. The consultation closes on 16 August 2026. That gives you seven weeks to understand what it means, review your governance, and decide whether to respond.
This is not a minor technical adjustment. It is a structural shift in CFO personal liability. If it passes as drafted, the standard required of you when signing off tax returns, corporation tax computations, and statements to HMRC moves from a civil law framework to a criminal one — and the threshold for criminal exposure drops from dishonesty to recklessness.
Why This Has Been Coming Since Budget 2025
The proposal was first signalled at Autumn Budget 2025, when the government indicated it would consult on aligning the direct tax regime with the criminal offences that already exist for indirect tax. Under section 167(1) of the Customs and Excise Management Act 1979 and section 72(3) of VATA 1994, it is already a criminal offence to make a reckless untrue statement in relation to VAT or customs duties. The government’s position is that there is no principled reason why the same standard should not apply to income tax, corporation tax, and capital gains tax.
HMRC’s consultation paper — running to over 5,000 words — explains the gap clearly. In direct tax, prosecutors can only secure a criminal conviction where they can prove dishonesty to the criminal standard. Reckless conduct — where a person was aware of the risk that a statement was untrue but unreasonably proceeded anyway — falls through the net into the civil penalty regime. HMRC’s view is that this leaves a meaningful compliance gap and that the deterrent effect of criminal law is absent precisely where it could be most useful.
What “Reckless” Actually Means at Law
This is the critical point and it is not the colloquial meaning of the word. HMRC has anchored the definition to the established criminal law test from R v G [2003] UKHL 50 — the House of Lords decision that defines recklessness in English criminal law. The test has two limbs:
- Awareness of risk: The person making the statement was aware of the risk that the statement was or would be untrue.
- Unreasonable to take the risk: Given the circumstances known to them, it was unreasonable to proceed regardless.
Both limbs must be satisfied. Carelessness — failing to take reasonable care without awareness of the specific risk — remains a civil matter. Deliberate dishonesty remains a more serious criminal offence under existing fraud legislation. The new offence is designed to occupy the middle ground: the person who knew they might be wrong, thought “it’s probably fine,” and filed anyway.
The proposed maximum penalty is two years’ imprisonment and an unlimited fine on indictment, with summary conviction available in the magistrates’ court. It would be an “either way” offence, meaning the prosecution retains discretion about which forum is appropriate.
The Scenarios That Worry HMRC — and Should Worry CFOs
The consultation paper sets out worked examples of conduct that HMRC considers would and would not fall within the new offence. The scenarios aimed squarely at individuals in senior finance roles are illuminating:
- Claiming a tax relief without reading the conditions: A director who claims a significant relief on the basis that it “probably applies” without reviewing the statutory conditions or seeking advice would, in HMRC’s view, be acting recklessly if they were aware there was a risk the relief did not apply.
- Signing off on a position known to be arguable: A CFO who knows a tax position is contentious, has been told by advisers it carries risk, and files without adequate documentation of that risk assessment could face exposure if the statement turns out to be untrue.
- Failing to make enquiries where suspicion exists: The consultation suggests that awareness of a risk coupled with a deliberate failure to investigate — “I didn’t want to know” — could satisfy the recklessness test.
What is explicitly outside scope: innocent errors, genuine misunderstandings where no risk was appreciated, and good-faith reliance on professional advice that turns out to be wrong. The word “genuine” is doing a lot of work there, and it will be tested in litigation.
The Corporate Governance Angle
For PE-backed businesses, group CFOs, and divisional finance directors at larger corporates, this proposal intersects directly with the Senior Accounting Officer regime and the Corporate Criminal Offence of Failure to Prevent Tax Evasion under the Criminal Finances Act 2017. The CCO has been on the compliance agenda since 2017. What is new is that personal criminal liability for recklessness would now sit alongside corporate liability for failing to prevent.
The ICAEW Tax Faculty and CIOT are both expected to submit formal responses to the consultation. The professional bodies’ concern, shared by most practitioners, is that the line between recklessness and carelessness will be extraordinarily difficult to draw in practice — and that HMRC’s enforcement discretion will create uncertainty for the profession for years after any legislation comes into force.
Commentary from KPMG UK’s Tax Update 2026 analysis notes the reckless statements offence as one of the most significant governance measures in the package, alongside the mandatory direct debit proposals for VAT and PAYE and the extension of HMRC’s direct debt recovery powers.
What Changes for You in Practice
The honest answer is: if your tax governance is already robust, this consultation should not change your day-to-day operations materially. The offence is designed to catch conduct that is already professionally unacceptable. But the experience of the Corporate Criminal Offence — where “reasonable prevention procedures” became a live compliance question for every company with UK operations — suggests that the passage of this legislation, if it happens, will generate a wave of internal review, policy updates, and adviser engagements that will cost real money and management time.
The structural changes worth thinking through now:
- Documentation of risk awareness: The key distinction between carelessness (civil) and recklessness (criminal) is awareness of risk. If your sign-off process does not currently document which tax positions are judgement calls and why, that gap becomes more significant under this regime. A contemporaneous memo recording the risk, the advice sought, and the basis for proceeding creates a clear record that the matter was considered — not dismissed.
- Adviser quality and instruction scope: The BCG case (HMRC v The Boston Consulting Group UK LLP [2026] UKUT 00025) handed down in January 2026 is instructive on a related point: superficial advice from a named firm is not necessarily sufficient to avoid a carelessness finding. The Upper Tribunal found that BCG’s reliance on PwC advice was careless because the analysis lacked sufficient technical depth. If the reckless statements offence passes, the quality — not just the existence — of tax advice will matter more.
- Tax risk appetite statement: Boards should be articulating, and CFOs documenting, the company’s tax risk appetite in terms that map onto HMRC’s compliance framework. The Senior Accounting Officer certificate is the obvious mechanism for this in large companies; for SMEs and owner-managed businesses, a written tax policy reviewed annually is the practical equivalent.
- Escalation protocols: Internal escalation procedures for uncertain tax positions — who decides, on what basis, with what documentation — need to be clear before a filing deadline, not after a query from HMRC.
The Consultation Window: Eight Weeks to Respond
The consultation closes on 16 August 2026. Responses should be sent to asres.consult@hmrc.gov.uk. The key questions HMRC is asking respondents to address include: whether the proposed definition of recklessness is sufficiently clear; whether the proposed sanctions are proportionate; and whether specific categories of taxpayer or situation should be excluded from scope.
If your business has a tax risk profile that makes this proposal directly relevant — particularly if you operate in areas where HMRC has been actively enquiring (R&D credits, transfer pricing, employment status, off-payroll working) — a response from your finance function or your advisers is worth considering. Consultation responses from well-structured businesses with practical experience of the grey areas carry weight.
The full HMRC Tax Update 2026 package contains a further 39 measures across simplification, compliance, and modernisation. The Accountancy Daily summary of the reckless statements proposal is a useful starting point if you want the practitioner framing before going to the full consultation document.
Six CFO Actions Before 16 August 2026
- Read the consultation paper. Five thousand words is not long for something that could result in personal criminal liability. Understand the recklessness definition and the worked examples before delegating a response to advisers.
- Audit your current sign-off process for tax returns and HMRC submissions. Map where judgement calls are made, by whom, and what documentation currently exists. Look for gaps where “we’ve always done it this way” substitutes for considered analysis.
- Review the quality — not just the existence — of your external tax advice. The BCG Upper Tribunal decision is a warning that reliance on a big name does not substitute for reliance on a robust analysis. Brief your advisers on the areas of greatest risk and ensure the advice you receive is technically grounded.
- Update or create a tax risk policy. If your board does not have a written tax risk appetite statement, this is the moment to produce one. It does not need to be lengthy. It needs to be honest about the risk profile of the business and the basis on which uncertain positions are taken.
- Review your Corporate Criminal Offence prevention procedures. The CCO and the new reckless statements offence overlap significantly in terms of the behaviours they target. If your CCO procedures are current, much of the governance infrastructure is already in place.
- Decide whether to submit a consultation response. Businesses with practical experience of the grey areas between recklessness and carelessness — particularly those that have been through HMRC enquiries — have something useful to say. Industry bodies (ICAEW, CIOT, ATT, CBI) are likely to submit; coordinating your response with them amplifies its impact.