ACCA Advanced Taxation (ATX) Practice Exam

What is the consequence of non-disclosure of an error in receiving funds from HMRC?

1. It can result in a tax refund by HMRC

2. It may lead to criminal proceedings for tax evasion

3. It has no legal consequence

4. It only results in a penalty fee

The correct answer is: It may lead to criminal proceedings for tax evasion

The non-disclosure of an error in receiving funds from HMRC can indeed lead to criminal proceedings for tax evasion. This is grounded in tax law principles that emphasize the importance of full and honest disclosure to tax authorities. When a taxpayer inaccurately reports information or withholds information that results in an improper financial benefit, such as an undue refund, HMRC views this as a serious violation. If the non-disclosure is deemed to be deliberate or reckless, it can be classified as tax evasion. This could trigger serious legal repercussions, including criminal charges. Tax evasion is considered a criminal offense because it undermines the integrity of the tax system and compromises the fairness of tax collection. Other options lack the same level of consequence that is associated with serious legal repercussions. For example, while a tax refund (the first option) may seem like a benefit, failing to disclose an error would not typically result in a refund but could instead lead to further action by HMRC. The idea that there are no legal consequences is misleading, as non-disclosure can have severe implications. Moreover, a simple penalty fee (the fourth option) does not capture the potential for criminal action that comes with non-disclosure, especially in cases of willful misconduct.