Brits who make innocent errors on their tax returns face being treated the same way as those who deliberately evade payments, under aggressive new powers quietly introduced after the Budget.

Under rules buried in the Finance Bill, which had its first reading in Parliament on Monday, HMRC will introduce a statutory ‘Duty to Correct’ regime from April 2028. The measure legally requires taxpayers to rectify mistakes on old tax returns upon becoming aware of them.

Existing tax law allows an uncorrected mistake discovered after filing to be treated as “careless”, which carries a lower penalty cap of up to 30 per cent of the unpaid tax and a six-year assessment window where HMRC can scrutinise old returns, impose fines and demand back taxes.

But the new regime will see that taxpayers who fail to take steps to correct their mistakes will have the inaccuracy branded as “deliberate”, which is used when HMRC is knowingly and intentionally fed false figures or withheld information to pay less tax.

It is the highest penalty tier from the tax authority, carrying a fine of between 70 per cent and 100 per cent, and allows HMRC to scrutinise taxpayers’ forms going back two decades.

Blurring the line

The shake-up comes as HMRC cracks down on tax avoidance in a bid to close the £59bn tax gap. The move aims to end the culture of taxpayers who spot historical errors and choose to “let sleeping dogs lie” rather than report it.

But tax barristers and City figures have questioned the legislation blurring “the long-established distinction” between honest mistakes and intentional fraud.

“HMRC’s policy objective is easy to understand, they want to close what they perceive to be a gap in the current compliance framework,” said Fiona Fernie, partner at Blick Rothenberg.

“Since the conduct of concealing income from the outset and failing to correct an honest mistake are plainly not in the same category there is a question over the proportionality of the proposed measure given that the legislation risks producing similar outcomes for both.”

HMRC will also be granted the power to issue Customer Correction Notices, which can be sent if the department has reason to suspect that a tax return is incorrect.

Andy Wood, tax barrister at Tax Barrister UK, said: “Failure to respond properly to a Customer Correction Notice could also create a presumption of carelessness, although taxpayers would have an opportunity to challenge this.

“HMRC should distinguish between deliberate non-compliance and taxpayers who genuinely struggle to understand their obligations or reconstruct historic financial information.”

Thresholds and clashes

Tax bodies also raised the alarm over the absence of a minimum threshold, a decision Wood branded a “concern”.

“Without one, taxpayers could potentially face formal correction notices over relatively small amounts of unpaid tax,” he said. “There is a risk that taxpayers could end up spending more on professional advice and administration than the tax originally at stake.”

Wood called for a threshold in order to “protect taxpayers from unnecessary compliance costs”.

The extended 20-year window also clashes with statutory record-keeping rules for the self-employed.

They are only legally required to keep records for up to five to six years, meaning those facing a 20 year audit may be unable to produce needed receipts and bank statements.

Fernie said: “This legislation needs clearer safeguards and a finite time limit for making corrections. Otherwise, a measure intended to modernise compliance could undermine it.”

A HMRC spokesperson said: “We know most of our customers act in good faith and want to get their tax right. These changes make it quicker and easier for taxpayers to correct errors when we flag them.

“They won’t be penalised for innocent mistakes, and deliberate penalty charges only arise where taxpayers fail to take reasonable steps to correct an inaccuracy they were already aware of.”