Until August 16th 2026, HMRC is consulting on a new criminal offence for making “reckless untrue statements or declarations” in direct taxes, writes Dan Mepham, managing director of SG Accounting.
Why this matters more for IR35 contractors than it first appears
The consultation’s stated aim — aligning direct tax with offences that already exist for VAT — sounds so modest that most limited company directors more broadly needn’t lose any sleep.
But for personal service company contractors navigating IR35 specifically, the practical effect could be far more significant than that framing suggests.
HMRC’s silence on IR35 doesn’t mean contractors are excluded
The HMRC consultation, “Introducing a criminal offence for making reckless untrue statements or declarations in direct tax,” doesn’t mention IR35, umbrella companies or disguised remuneration once.
That silence shouldn’t be read as exclusion.
HMRC wants the offence to apply to “all direct tax matters,” and defines a “statement” broadly enough to cover tax returns, claims, declarations and information given during a compliance check — which raises an obvious question the consultation itself never answers. If a tax return relies on an IR35 assessment, or an umbrella arrangement or a remuneration structure, that later turns out to be wrong, could HMRC argue the contractor wasn’t merely careless, but reckless?
Is HMRC’s reckless offence aimed at IR35 status determinations?
The proposed HMRC criminal offence isn’t aimed at the IR35 status determination process itself. In most engagements, that responsibility now sits with the end-client rather than the contractor.
The potential exposure, as this piece sets out, sits elsewhere: in the information contractors supply that underpins an assessment (e.g. outside IR35), the declarations they make once a position is set, and the arrangements and/or working practices they keep using after being warned about them.
What counts as ‘reckless’ rather than a genuine mistake?
‘Recklessness’ requires more than a simple error. The test HMRC proposes is whether a person was aware of a risk that a statement was untrue, and proceeded anyway without reasonable justification. Genuine mistakes and misunderstandings are not the target.
Between innocent error and deliberate fraud, though, sits a large grey area — and that grey area is where most of the uncertainty for contractors sits too.
Could the offence apply to IR35 status decisions?
Not directly, but contractors could still be exposed if the information they supplied for an IR35 assessment turns out to be incomplete or misleading. For example, if a contractor knowingly supplies incomplete or misleading information that contributes to an outside IR35 Status Determination Statement, HMRC could potentially argue that any resulting declaration was not simply mistaken but reckless.
As mentioned, the consultation doesn’t specifically address IR35, but equally, there is nothing that expressly excludes it from the scope of a broadly drafted direct tax offence.
Could using a high take-home umbrella company carry the same risk?
Yes, contractors who keep using an unusually high-net-pay umbrella after being warned about it could face the same exposure. Over recent years, contractors have repeatedly been warned about schemes promising unusually high take-home pay through loans, advances or other artificial arrangements. If an individual continues using such a scheme after receiving warnings from advisers, agencies or HMRC itself, prosecutors might argue the risk was obvious enough that ignoring it became reckless rather than merely negligent.
The consultation doesn’t specifically say high take-home umbrella employees would be in scope, just as it doesn’t say outside IR35 contractors who are really inside would be either. But at the same time, there is nothing within the proposal that expressly rules such scenarios out either — and that uncertainty alone is worth factoring into your PAYE engagement choices as a contractor.
Will HMRC’s reckless criminal offence apply to accountants?
Yes. The proposed offence is not confined to taxpayers — HMRC expressly envisages that accountants and advisers could be within scope where they make or facilitate reckless untrue statements. That’s an important change in incentives: an accountant facing potential criminal exposure is likely to be significantly less willing to:
- Accept aggressive interpretations
- Overlook weak evidence
- Sign off ‘grey area’ tax positions without robust supporting documentation.
For reputable advisers like us (we’ve been advising on contractor tax and accounting since we launched in 1995), it’s probably a welcome development.
That’s because the reckless offence should, in theory, help distinguish genuine professional advice from arrangements that stretch credibility.
For contractors, however, it reinforces an uncomfortable reality that many still underestimate: responsibility ultimately remains with the taxpayer.
Can contractors rely on ‘my accountant dealt with it’ as an HMRC defence?
No, contractors remain legally responsible for their own tax return even when an accountant prepares it.
A First-tier Tribunal decision highlighted by ContractorUK several years ago (McCann v HMRC) made exactly this point: the judge found that directors cannot simply hand information to an accountant and assume all responsibility transfers with it. In 2026/27, it’s the same — taxpayers are responsible for checking their returns and ensuring they’re accurate, no matter how proactive their accountant is.
This principle has long existed, but HMRC’s proposed criminal offence for recklessness could give it sharper teeth. In practice, ‘my accountant dealt with it’ may become an increasingly weak defence where a contractor ignored obvious warning signs. If both the adviser and the client were aware that something looked wrong but proceeded regardless, both could potentially face uncomfortable questions.
Five steps PSC contractors should take now, before HMRC criminalises recklessness
Personal service company (PSC) contractors should take five practical steps now, even though the consultation is not yet law (although note, it does close on Aug 16th):
- Respond to the HMRC consultation by emailing your comments to asres.consult@hmrc.gov.uk
- Understand the arrangements you’re using, rather than taking them on trust
- Challenge conclusions — on status, pay structure or otherwise — that seem ‘too good to be true’ (which is age-old HMRC advice)
- Document your decisions and the reasoning behind them
- Make sure any professional advice you rely on comes from advisers who are prepared to stand behind it.
The takeaway
The direction of travel is clear: HMRC is becoming less interested in what taxpayers intended, and more interested in what risks they knowingly ignored. Whether those risks extend to IR35, though, is a question that the jury is disconcertingly still out on.
Start the discussion
Working contractors, accountants and recruiters chime in on the issues raised in this article.
No comments yet — be the first to chip in.