Blowing the whistle!

In this blog, we consider the UK government's recently announced proposals for a new reward scheme which is intended to encourage ‘whistleblowers’ to provide HMRC with details of suspected tax fraud.

This blog is based on an article published in Taxation on 7 April 2025.

Introduction

On 11 March 2025, the government issued a press release which included details of a number of initiatives, including plans for a new reward scheme to be launched later this year which is intended to encourage ‘whistleblowers’ to provide HMRC with details of suspected tax fraud. The stated aim is to "target serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes".

The government has said that this initiative will complement the existing HMRC rewards scheme. Informants who tip-off HMRC could receive a significant amount of "compensation", which will be calculated as a portion of any sum HMRC is able to collect as a consequence of acting on that information. The government has said the new reward scheme will take inspiration from the US and Canadian whistleblower models and it is therefore helpful for us to consider those models.

The US model

The US tax fraud whistleblower programme was introduced in 2006 and is run by the Whistleblower Office, a separate office within the US Internal Revenue Service (IRS). It provides for mandatory percentage awards and an appeal system under which whistleblowers can appeal decisions against final determinations by the Whistleblower Office to the US Tax Court. Such appeals can be against the amount awarded, or denial of a claim, but there is no right of appeal against a decision by the Whistleblower Office not to pursue enforcement. The programme primarily targets tax evasion, but can also apply to tax avoidance where, in the view of the IRS, aggressive or abusive strategies have been implemented.

The programme uses specific, detailed forms (a single submission to the Whistleblower Office can be used to report multiple taxpayers) and there are a number of formal procedural rules which must be followed (governed by statute, regulations and internal procedural rules) which, for example, provide eligibility criteria, how awards are to be determined, and appeal rights and processes. Notably, non-US citizens are eligible to submit information, participate and receive awards. The Whistleblower Office will only determine quantum and make a payment to the whistleblower once a case has been finally resolved and the proceeds collected. Given the complexity involved in tax investigations and the possibility of litigation, this process can typically take between five and ten years before being concluded. The Whistleblower Office makes every effort to protect the identity of whistleblowers, but it does not guarantee full anonymity, especially in cases that proceed to litigation, or involve criminal proceedings.

The programme is available in cases where an individual taxpayer has a gross minimum income of at least $200,000 for the taxable year in question, or the proceeds in dispute exceed $2m. The IRS will pay whistleblowers 15% to 30% of any additional tax collected through investigations instigated as a consequence of information received from whistleblowers, with no cap on the total amount it will pay provided it is within the appropriate percentage. Accordingly, the financial payments made by the IRS can be, and often are, substantial. The percentage an individual will receive will depend on the extent to which they have "substantially contributed" to the additional tax recovered by the IRS and is dependent on a series of positive and negative factors which are set out in IRS manuals and guidance. Positive factors that may increase the award percentage include:

• the provision of original information;
• the degree of assistance provided to the IRS;
• the extent of any professional or personal risk taken;
• specificity and credibility;
• promptness; and
• the impact of the information.

Conversely, negative factors which may decrease the percentage include:

• the whistleblower’s own involvement in the wrongdoing;
• delayed reporting;
• any lack of co-operation with the IRS;
• the provision of information already known to the IRS; and
• vagueness or violation of the law in obtaining information.

There also exists a separate discretionary reward system operated by the IRS, under which a maximum of 10% of any additional tax can be paid to persons who have provided less substantial information which, for example, may have originated from a judicial or administrative hearing, a government report or the media. No appeal rights exist against decisions made by the IRS in respect of such discretionary awards.

The IRS’s Whistleblower Office’s 2023 annual report – its most recent – was released on 24 June 2024 and covers the 2022-23 fiscal year. The report provides details and analysis of the $88.8m of payments made, based on a collection of additional tax of $338m, as a consequence of the information and reports it received from whistleblowers. In this period, 6,455 submissions were received, 16,932 award claims were established (up 44% on the average number in the prior four years) and 121 awards were paid. The average percentage of tax recovered awarded to whistleblowers was 26.3%, a substantial increase from the 14.7% and 21.9% awarded in 2021 and 2022, respectively. The payment of $88.8m was more than double the amount paid in 2022, and is indicative of the ever-increasing popularity of this programme and the financial returns it provides to both whistleblowers and the IRS. In one settlement last year, an individual was obliged to pay $263m to the IRS and this enabled three anonymous whistleblowers to share $79m.

Since its first award to a whistleblower in 2007, the IRS has paid over $1.2bn to whistleblowers and collected an additional $7bn in tax as a consequence of the information it has received from whistleblowers.

The Canadian model

Canada has two whistleblower programmes.

The Leads Program

The Canada Revenue Agency (CRA) operates a Leads Program (the Program) for reporting suspected tax or benefit cheating. However, financial rewards are not offered for information submitted through the Program.

The Program is non-legislative and complements other CRA compliance activities such as audits and criminal investigations. Anonymity and the protection of personal information is central to the Program, but this cannot be guaranteed, especially if the person concerned is a key witness in litigation or criminal proceedings. Unlike the US model, the CRA does not keep an informant updated as to the status or outcome of any investigation conducted under the Program.

There is no officially stated minimum amount that must be at risk in order to make a submission under the Program, however the amount is important in forming the CRA’s approach in terms of prioritisation and investigative activity.

Details of the number of leads received, investigations initiated or outcomes resulting from the Program are not publicly disclosed by the CRA. However, the CRA has acknowledged that the Program plays a crucial role in identifying and addressing non-compliance within Canada’s tax system.

The Offshore Tax Information Program

For those who suspect Canadian taxpayers of tax fraud and/or aggressive tax avoidance facilitated by the use of offshore structures, a separate scheme, introduced in 2014, is available called the Offshore Tax Information Program (OTIP).

Through the OTIP, both Canadian and non-Canadian nationals can be paid between 5% and 15% of the amount collected by the CRA as a consequence of information they provide to the CRA that relates to tax evasion and/or aggressive tax avoidance. Such information is required to be sufficient, specific and credible, as well as related to international non-compliance and the federal tax evaded or avoided has to have been over $100,000 Canadian dollars (excluding interest and penalties). In order to be eligible to use the OTIP, informants must not have a conviction for tax evasion; be an employee of the CRA; be a government employee who has obtained the information through their position; or be reporting on their own non-compliance.

As with the IRS model, the CRA does not pay informants on receipt of information. Informants must wait until any appeal process has been exhausted, which means that informants may have to wait a considerable period of time before they receive payment from the CRA. Under the OTIP, the name of an informant will normally remain confidential although, as with the US model discussed above, it is possible that an informant’s identity may have to be disclosed where they are required as an essential witness in court proceedings.

With regard to quantum of reward, the quality, timeliness, relevance of information, level of cooperation and the informant’s role in any wrongdoing, are key considerations for the CRA when determining the amount to be paid to an informant.

The CRA has previously confirmed that since the inception of the OTIP in 2014 and as at 31 December 2019, it had received 5,500 calls (of which over 1,600 have been from potential informants); over 750 written submissions; and had entered into nearly 50 contracts with informants. As a consequence of information received, the CRA has completed in excess of 150 audits into taxpayers, and assessed almost $60m Canadian dollars in additional tax. The OTIP appears to have gained momentum as, interestingly, for the first two years following its introduction, no rewards had been paid to informants under the OTIP. Unfortunately, more up-to-date data is not publicly available, but the OTIP continues to offer financial rewards ranging from 5% to 15% of the additional federal tax assessed and collected as a result of information received from informants.

The current UK scheme

The current scheme operated by HMRC rewards informants who provide credible evidence of tax fraud to HMRC. This scheme is operated on a discretionary basis and with little formal structure or public transparency. Details of amounts paid by HMRC to informants are not readily available and historically have had to be obtained by means of requests made of HMRC under section 1 of the Freedom of Information Act 2000.

The scheme provides for limited financial rewards, especially when compared with the US model. Research carried out by RPC (see ‘Payments to whistleblowers increase in the past year’ published in Taxation, 23 August 2023), revealed that HMRC paid £509,000 to informants between March 2022 and March 2023, a small increase on the £495,000 it paid in 2021-22 and a further increase on the £400,000 it paid in 2020-21.

More recently, it has been reported by LexisNexis (see Law360, 12 March 2025) that HMRC received in excess of 150,000 reports of tax evasion in 2023-24 and paid out a record, but still relatively modest, £978,256 to informants. It would appear that as public awareness of the reward scheme operated by HMRC has grown, more people are offering information to HMRC regarding tax non-compliance.

The pressure on HMRC to increase the tax yield and close the tax gap is not likely to decrease in the near future, and the number of informants contacting HMRC is likely to increase substantially once the new whistleblower scheme is introduced later this year.

What can we expect from the new scheme?

Details of the new reward scheme are not currently available and are to be provided in due course, but the well-established schemes in the US and Canada provide an indication of the system the government is likely to introduce in the UK, especially as the press release confirms that the new reward scheme will take "inspiration" from the successful US and Canadian whistleblower models.

We do know that under the proposed scheme, informants will be paid a specific proportion of the tax recovered by HMRC as a result of the information provided to it by the whistleblower. Exactly what this percentage figure will be is still to be decided. HMRC has stated that the new scheme could potentially result in "significant" amounts being paid to informants and it has been reported in the general press (including The Times, 11 March 2025) that ministers are considering making payments to informants of between 10% and 25% of any additional tax collected.

Conclusion

In our view, the reporting systems by which information relating to suspected tax fraud can be conveyed to HMRC do need to be improved to make them more accessible and transparent. A formal system, providing greater financial rewards, similar to that operated in the US, would go some way to achieving that. Such a system is likely to encourage more people to contact HMRC with information relating to suspected tax fraud. HMRC has been making payments for information on an ad hoc basis for many years and the Exchequer is likely to benefit from a more generous and formal system. Under the proposed new scheme, HMRC can expect a significant increase in instances of whistleblowing, especially where the amount of additional tax recovered is substantial and the payments made to the whistleblower concerned is correspondingly greater than under the present system.

That said, although a more formal and certain system, along the lines of the US model, would be welcomed by many, the new scheme will need to have in place appropriate and robust safeguards to ensure quality and reliability assurance in relation to the information provided to HMRC. There is a risk, as with any system which provides potentially substantial financial rewards in return for the provision of information, that it will produce vexatious and opportunistic whistleblowing. The government wishes to encourage people to provide HMRC with credible and robust information on which it can then act to increase the tax yield and close the tax gap and the proposed new system, if properly implemented and monitored, can achieve that aim.

Finally, it is notable that, prior to the recent press release, the Serious Fraud Office had called for a similar system under which it would reward whistleblowers for information that assists it with its functions and the Financial Conduct Authority is also considering its position on incentivising whistleblowers. The direction of travel in this important area is clear.