The Government has introduced a new ‘strengthened reward scheme’ to incentivise informants to report serious tax avoidance or evasion to HMRC. The scheme was launched in the Autumn Budget alongside other reforms aimed at closing the tax gap, and it builds on HMRC’s existing reporting processes.

The strengthened reward scheme

As outlined in our previous article, HMRC already had the power to pay rewards to informants of tax non-compliance. However, the amounts paid out were modest and the payment scheme was not particularly publicised by HMRC.

Under the new scheme, HMRC have the ability to pay informants an award of 15-30% of the additional tax collected. There is a minimum threshold of £1.5m of additional tax that needs to be collected before the reward scheme will apply. The scheme looks to target serious tax avoidance or evasion, and the guidance states that this will typically involve large companies, wealthy individuals, offshore avoidance or tax avoidance schemes.

The scheme was launched in the Autumn Budget and comes into force with immediate effect. Its purpose is to incentivise credible and actionable intelligence that results in a meaningful tax recovery. The Government estimates that the first rewards will be paid in 2027/28 and that £225m of additional tax will be collected as a result of the scheme by the end of the 2030/31 tax year. This could mean HMRC paying out £96m in rewards over the same period. Rewards at that level would cause the amounts currently paid (generally of less than £1m each year) to pale in comparison and it could represent life-changing amounts being paid to whistleblowers.

The scheme is based on the well-established model used in the US by the Internal Revenue Service (IRS) and, by way of comparison, in the fiscal period 1 October 2023 to 30 September 2024 the IRS paid whistleblowers 105 awards totalling $123.5m (which was attributable to information that resulted in proceeds collected of $474.7m). The IRS received a total of 5,646 submissions from whistleblowers in this period. Whilst the amount of additional tax collected may not be quite at this level (given the difference between the respective countries’ total tax revenues), these figures give a sense of the powerful motivational effect of financial incentives on potential whistleblowers. 

Reports are made through HMRC’s existing reporting service. The relevant form invites informants to provide a relatively limited amount of disclosure, but HMRC will follow up with informants for additional information and documents if they require further information. Informants are asked to provide details of the type of activity being reported, the connection of the informant to the individual or business being reported, and the duration and estimated value of the activity. 

While the user-friendly format makes it easy for individuals to disclose, HMRC will likely need to allocate further resources to deal with an influx of disclosures made under the scheme. The reports will need to be vetted by HMRC to identify those that disclose a genuine issue that needs to be investigated further. While there will be a cost to HMRC in terms of pursuing additional investigations and rewarding informants, the view taken by the Government is that these costs will ultimately be worthwhile if large amounts of tax is collected as a result of the disclosures.

Eligibility for a reward

Eligibility for a reward is subject to certain criteria, in addition to the £1.5m tax collection threshold. For example, HMRC will not pay informants if:

• the informant is the taxpayer involved in, or was the initiator of, the avoidance or evasion;

• the information is provided anonymously;

• the information provided may already be known to HMRC or could have been identified through routine processes; or

• the informant is legally required to disclose (or not disclose) the information. 

Rewards will be made at HMRC’s discretion and are not guaranteed. HMRC retain control over whether to make an award and what percentage to apply, taking into account the quality and usefulness of the information provided. Whistleblowers will not receive any feedback on their disclosure or updates on the investigation, and will have no right of appeal if HMRC ultimately decide not to make an award. 

Points to note for employees

Given the focus on large corporates and wealthy individuals, it is likely that informants may be employed by the entity or individual they are reporting. 

The new scheme is therefore likely to intersect with the UK’s existing whistleblowing framework, which protects employees (and workers) from retaliatory detriments and/or dismissal on the grounds of having made such disclosures. 

Employees should, however, be mindful of issues relating to anonymity and confidentiality:

• Anonymity: anonymous reporting is not available under the reward scheme. While HMRC has confirmed it will treat the disclosures as private and confidential, potential whistleblowers may wish to consider whether they need to take any steps to protect their position in the event that their identity becomes apparent. 

• Confidentiality: whistleblowers should take care not to breach confidentiality or data protection laws when gathering information. 

Points to note for corporates

The scheme will inevitably result in an increased number of investigations as a result of disclosures made by informants. Corporates, in particular, may want to review their existing whistleblowing guidance and policies.  A financial scheme of this sort may naturally prompt informants to disclose to HMRC rather than internally. Corporates will, therefore, want to consider how to encourage internal whistleblowing through effective reporting channels coupled with responsive investigation protocols. Ensuring employees continue to have faith in internal “speak up” channels will be a critical point for most employers, particularly in the regulated financial sector where the FCA’s expectations add an additional layer to companies’ responsibilities to facilitate internal disclosure.

Given that it is open to individuals to approach HMRC directly, while companies will rightly want promote their own internal disclosure procedures, they should not attempt to mandate internal reporting exclusively, or impede any disclosures to HMRC. 

While there are considerable protections for whistleblowers and corporates will need to be mindful of their responsibilities as noted above, individuals do not simply have freedom to ignore confidentiality and data protection rules. Employers should, therefore, also have clear policies and procedures in place to prevent employees improperly copying, removing or sharing documents and other materials.

Ultimately, prevention will always be better than a cure when it comes to tax compliance, and so companies should also take the opportunity to revisit their existing tax policies and procedures in order to mitigate the risk of reportable issues and to support a credible defence if HMRC do make enquiries. 

Looking ahead

Tax investigations can take years and the rewards will only be paid out of the additional tax collected. It may therefore be a number of years before we see the first rewards being made under the scheme. Once the first rewards are made, HMRC may look to publicise the amounts paid out with a view to incentivising further whistleblowers. Any scheme will be successful only if potential informants are confident that they could be rewarded and, given that reward payments are subject to the discretion of HMRC, potential whistleblowers may want the reassurance of seeing that HMRC are willing to pay out large sums for quality disclosures.

More widely, however, the introduction of the strengthened HMRC reward scheme marks a shift towards a more commercial approach being taken by the Government in the fight against economic crime. While this scheme focuses on tax avoidance and evasion, the Serious Fraud Office (SFO) has been vocal about its desire to incentivise whistleblowers of other financial crimes. Depending on the success of HMRC’s strengthened reward scheme, it may provide the SFO with further impetus to push for an equivalent scheme in the corporate crime sphere.