HMRC to offer ‘life-changing’ cash rewards for employees who report tax dodging bosses
In an effort to cut the UK’s ‘tax gap’ by targeting large firms and wealthy individuals, HM Revenue and Customs (HMRC) has boosted the cash rewards available to Brits who report fraudsters.
Chancellor Rachel Reeves officially announced the new scheme in last month’s spring statement, claiming it will help the government to recoup a share of the £7.5 billion lost each year to tax avoidance – which is legal – and evasion – which isn’t.
Informants will be paid up to 25% of the extra tax revenue raised as a result of their report, mirroring the incentive-based model used across the pond.
In the 2022/2023 financial year, the USA’s Internal Revenue Service (IRS) paid $89 million (£67 million) to 121 whistleblowers – who collectively enabled an additional $338 million (£255 million) in tax collection.
While this amounts to an average reward of $735,537 (£554,000) each, some have received much larger payouts; last year, three whistleblowers split a total of $74 million (£56 million) after the individual they reported was ordered to return $263 million (£198 million).
The Treasury said it had been ‘inspired’ by this approach, and aims to sweeten the deal by ensuring those who speak out ‘take home a significant amount of compensation’.
James Murray, Exchequer secretary to the Treasury, said: ‘Tax fraud is a crime — it rips off everyone else who plays by the rules.
‘As is the case in the US and Canada, our new approach will make sure people are incentivised to do the right thing and help the government to tackle tax avoidance head on. This new scheme helps deliver our plan for change, by supporting economic growth and putting more money in people’s pockets.’
At present, HMRC guarantees anonymity, and gives informers a modest cut on a ‘discretionary basis’ (paying out a total of £978,256 in the 2023/2024 tax year).
However, Andrew Park, tax investigations partner at Price Bailey, says the existing UK rewards are ‘minuscule’ when compared to those on offer in the US – andcoming forward needs to be worth it, especially when the stakes are high.
‘The thing with very large frauds is that the people in a position to report them tend to be in quite involved positions,’ he tells The Times.
‘Under the current system, HMRC gets swamped with vexatious, low-level reports, as it hasn’t provided enough of an incentive for the really major frauds. Some of these cases involve criminal gangs and people could be at physical risk if they blow the whistle.’
What will the new scheme look like?
Although exact details will be confirmed later this year, we do know it will focus on ‘serious’ non-compliance from big companies and the super-rich.
That means, according to MacFarlanes, there will probably be ‘a minimum threshold of additional tax that needs to be collected before the reward scheme will apply’, as well as extended confidentiality provisions to protest those who inform.
The law firm argues that informants are likely to be employed by the entity or individual they are reporting, and these employers may try to use non-disclosure agreements as a deterrent.
However, not only are these documents unable to overrule protections for whistleblowers, they may be eclipsed by the’life-changing’ cash rewards on offer from HMRC.
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