HMRC has significantly increased its payouts to individuals providing tip-offs about tax fraud, reaching nearly £1 million in 2023/24—92% higher than the £508,500 paid in the previous year. This marks the highest total in at least seven years, as revealed by a Freedom of Information request by accountancy firm Price Bailey.

Key Details:

1. Tip-Off Statistics:
   • HMRC received 151,763 anonymous reports via its fraud hotline in 2023/24, slightly down from 157,270 in 2022/23.
   • Despite fewer reports, the increase in payouts indicates an emphasis on encouraging and rewarding informants.
2. Purpose of Increased Payouts:
   • The move aligns with HMRC’s efforts to address the £39.8 billion tax gap.
   • Informants are crucial in identifying and addressing tax fraud, although challenges remain in incentivizing high-quality tips.
3. Criticism of HMRC’s Whistleblower System:
   • Andrew Park, a tax partner at Price Bailey, criticized the payout system for being “opaque” and “modest”, especially when compared to the IRS in the US:
     • The US paid $89 million to 121 whistleblowers in one year, linked to recovering $338 million in taxes.
     • By contrast, HMRC’s payouts are not directly linked to the amount of tax recovered, which may discourage whistleblowers from reporting significant fraud.
4. Potential Risks for Whistleblowers:
   • Many whistleblowers are employees reporting their employers. Despite legal protections, fear of job loss can deter individuals, especially given the relatively low rewards.
5. Calls for Reform:
   • Andrew Park urged HMRC to:
     • Increase payouts to make them more appealing.
     • Link rewards to the tax recovered.
     • Enhance the transparency and accessibility of the whistleblower reward system to encourage more high-quality reports.

Broader Implications:

• Global Comparison: HMRC’s approach contrasts starkly with more robust systems like the US IRS, highlighting room for improvement in incentivizing whistleblowers.
• Whistleblower Protection: Strengthening confidence in the safety and value of coming forward could significantly aid HMRC’s tax recovery efforts.
• Tax Gap Strategy: With a tax gap of nearly £40 billion, ensuring a more efficient whistleblower system could become a cornerstone of HMRC’s fraud prevention strategy.

This increase in payouts demonstrates progress, but structural reforms may be needed for HMRC to maximize the effectiveness of its whistleblower program.