HMRC (His Majesty’s Revenue and Customs) has unveiled a new reward system aimed at encouraging whistleblowers to report tax evasion. Under this scheme, employees who inform on their employers’ tax fraud could receive up to 25% of the extra tax revenue generated as a result of their report.
The move, inspired by successful models in the United States and Canada, seeks to address the persistent issue of tax fraud by offering substantial incentives.
HMRC’s previous system, which provided only modest rewards on a discretionary basis, is being revamped to provide greater motivation for those with insider knowledge of large-scale tax evasion schemes.
A Step Toward a More Effective Anti-Fraud Strategy
James Murray, the Exchequer Secretary to the Treasury, highlighted the importance of this new approach in combating tax avoidance.
“Tax fraud is a crime — it rips off everyone else who plays by the rules,” Murray said, explaining that the reward system would incentivise individuals to assist the government in tackling these financial crimes directly. The change is expected to support broader economic growth by addressing tax evasion more effectively, putting more money into public finances.
Under the old system, HMRC provided a limited payout, which amounted to just under £1 million in the 2022-2023 fiscal year. This approach, however, has often been criticised for its inability to draw attention to larger fraud cases.
Andrew Park, a tax investigations partner at Price Bailey, argued that the modest rewards in the UK have failed to encourage the reporting of more substantial fraud, particularly cases involving criminal gangs. Without adequate incentives, whistleblowers in high-risk situations are less likely to come forward.
Comparing the UK System with the US Model
The new reward structure follows in the footsteps of the US, where the Internal Revenue Service (IRS) pays out much larger sums to informants. In the 2022-2023 fiscal year, the IRS paid out $89 million (£68 million) to 121 whistleblowers, with individual payouts averaging over $735,000 (£568,000).
By comparison, HMRC’s total payout of £978,256 for the same period was significantly lower. This disparity raises questions about whether the UK’s current model provides sufficient incentive to encourage individuals to report tax fraud, especially when the risks for whistleblowers are high.
The US model is often cited as one of the most effective in the world, with large rewards helping to uncover significant cases of tax evasion.
According to experts, the UK’s decision to introduce a more generous reward system could lead to similar successes, particularly in tackling complex cases that require inside information. The incentive-based approach could be pivotal in ensuring that HMRC receives the kind of high-quality information necessary to recover large sums in unpaid tax.
