The United Kingdom has launched a new initiative aimed at combating tax avoidance and evasion, officially introducing its Strengthened Reward Scheme for tax whistleblowers. Announced on November 28, 2023 by His Majesty’s Revenue and Customs (HMRC), this significant reform adopts a model similar to the successful United States incentive program, offering potentially life-changing rewards for individuals who report high-value tax fraud.
Transforming Tax Enforcement
The introduction of this scheme marks a pivotal shift in the UK’s approach to tax enforcement. Previously, informers received minimal rewards under a system that often discouraged reporting due to its discretionary nature. In the 2023/24 fiscal year, HMRC dispensed only £978,256 to informants, a stark contrast to the UK’s estimated £46.8 billion tax gap. This new program addresses these shortcomings by creating a dedicated avenue for high-value cases involving large corporations, wealthy individuals, and tax avoidance schemes.
Key aspects of the Strengthened Reward Scheme include robust financial incentives. Whistleblowers can now earn between 15% and 30% of the tax collected if their information leads to the recovery of at least £1.5 million in tax. This approach aligns with the highly effective Internal Revenue Service (IRS) whistleblower program, which has successfully recovered over $7.4 billion in unpaid taxes since its inception.
Eligibility and Reporting Process
To qualify for a reward under the new scheme, several conditions must be fulfilled. Eligible whistleblowers must provide original and specific information that is not already known to HMRC. Importantly, they must not be the individual involved in the evasion or related to those who planned the fraudulent activity. Furthermore, current or former civil servants who obtained the information through their employment are ineligible.
The scheme also specifies actions that disqualify potential whistleblowers:
– Information obtained through government employment
– Anonymous reporting (though anonymous reports are accepted, they do not qualify for payment)
– Reporting on behalf of someone else
– Information that could have been identified through HMRC’s routine processes
– Mandatory disclosures required by law
Individuals wishing to report suspected tax avoidance or evasion can do so through HMRC’s official reporting system at www.gov.uk/report-tax-fraud. Reports must include detailed descriptions of the suspected activities, duration, estimated value, and any supporting information.
The significance of this reform cannot be overstated. The UK’s tax gap represents approximately 5.3% of total tax liabilities, largely due to sophisticated evasion strategies that are challenging for authorities to detect without insider information. Studies, including a landmark report from the Royal United Services Institute (RUSI), consistently demonstrate that financial rewards significantly boost whistleblower reporting, leading to actionable intelligence and a deterrent effect on economic crime.
Experts caution that, while the new scheme represents a considerable improvement, rewards remain discretionary and not guaranteed. This differs from the US model, where qualifying whistleblowers have a statutory right to payment. Those considering reporting are advised to seek legal counsel, negotiate a written agreement regarding reward terms, and understand that tax investigations may span several years.
Looking ahead, the success of the Strengthened Reward Scheme relies heavily on HMRC’s commitment to following through on reward promises and the government’s willingness to enhance protections against retaliation for whistleblowers. For those contemplating reporting tax fraud, the message is clear: the UK has fundamentally shifted its stance on valuing and rewarding contributions to the protection of public finances.
