Whistleblowing On Serious Tax Fraud And Avoidance: What Businesses Need To Know

The UK Government has ramped up its efforts to "close the tax gap" by launching a new, more generous reward scheme for informants who report serious tax fraud or avoidance. If the tax at stake is at least £1.5 million, a qualifying informant could receive between 15% and 30% of the tax collected by HMRC (excluding interest and penalties). That means the minimum payout starts at a hefty £225,000, which is a powerful incentive for would-be whistleblowers.

What does this mean for your business?

With such significant rewards on offer, there is likely to be an increase in HMRC investigation and enforcement activity, especially in relation to the serious end of the compliance spectrum. Accordingly, now is the time for businesses to ensure their policies and procedures relating to:

• whistleblowing;
• preventing the facilitation of tax evasion; and
• handling dawn raids,

are not just up to date, but also operational and well-publicised within the business. We regularly support clients in these areas, including through tailored training: please reach out to one of the Key Contacts below if you would like to discuss your arrangements.

What counts as "serious tax fraud or avoidance", and who are HMRC's targets?

HMRC's guidance indicates that the informer regime is focused on situations where "a person or business is deliberately not paying enough tax" (emphasis added).

Following the Supreme Court's decision in HMRC v Tooth [2021] UKSC 17 (see our post here), it is clear that conduct amounts to "deliberate" non-payment of tax only where it involves an "intention to mislead [HMRC]". Accordingly, it would appear that the scheme excludes:

• criminal tax offences where no specific intention is required (ie, strict liability offences); and
• avoidance that doesn't involve an intention to mislead.

This clarification (of what is within the scope of the regime) is helpful given that it can be difficult to draw a clear dividing line between what amounts to (objectionable) tax avoidance and (permissible) tax planning. However, less discerning informants may still report tax planning which falls short of being "serious fraud or tax avoidance", potentially triggering HMRC enquiries and investigations even where the conduct in question falls outside the scheme (and so where no reward will be payable).

As regards the taxpayers being targeted by the scheme, HMRC guidance makes clear their expectation that the sort of serious conduct within scope is likely to involve large companies, wealthy individuals, and offshore avoidance schemes.

Who is a qualifying informant?

To qualify for a reward, an informant must be someone who:

• provides valuable information (not already known, or easily identifiable, by HMRC) that leads to the collection of tax;
• provides that information voluntarily, lawfully, and on their own behalf;
• identifies themselves (rather than providing the information anonymously); and
• is not specifically excluded from the scheme. A person is specifically excluded where they (a) are a civil servant / Government worker who obtained the relevant information while they were employed as such, (b) are the taxpayer involved in the deliberate non-payment, or someone who planned or started the actions which led to the deliberate non-payment, or (c) obtained the information from someone in of those two categories.

No reward will be paid where doing so might, directly or indirectly, lead to the funding of illegal activity. Further, HMRC makes clear that an informant must not encourage anyone to commit a crime in order to obtain further information (and, more generally, should not try to investigate the relevant non-payment of tax themselves, or tell anyone that they are making a report).

It is notable that the statutory power which enables HMRC to pay rewards (section 26 of the Commissioners for Revenue and Customs Act 2005) provides that HMRC "may pay a reward to a person in return for a service which relates to a function of [HMRC]" (emphasis added). That language provides a strong basis for asserting that any reward payable by HMRC will be chargeable to income tax as "miscellaneous income". Accordingly, an informant will want to ensure they take advice on the proper tax treatment of their rewards (to avoid the risk that they themselves end up being the subject to an informant's disclosure to HMRC).

What about confidentiality, data protection etc?

As noted above, HMRC's expectation is that most disclosures will relate to large companies or high net worth individuals. As such, it is very possible that a large number of potential informants will be employees. However, there is also plenty of scope for evidence of non-compliance to be available to non-employees, such as advisers, customers, service providers, and other contractual/financial counterparties.

The Employment Rights Act 1996 (the "ERA") provides workers with significant protections against victimisation (by their employer or co-workers) or dismissal where they make "protected disclosures". If making a bona fide disclosure to HMRC within the terms of the enhanced scheme (where the informant believes the allegations are substantially true), it is very likely to qualify as a protected disclosure.

However, this does not necessarily mean that an employee will not be in breach of duties owed to other parties when making a disclosure to HMRC (and, of course, the protections under the ERA do not extend to informants who are not workers). For example, if a bank employee made a disclosure in relation to a customer, this may amount to a breach of confidence (Tournier v National Provincial and Union Bank of England [1924] 1 KB 461) as well as a breach of regulatory obligations (eg, General Organisational Requirements 2.4 of the PRA Rulebook). Where the allegations relate to a crime (ie, tax fraud), duties of confidence may be overcome without too much difficulty. However, the position may not be so straightforward where the subject matter of the disclosure is suspected avoidance.

Given these obligations, firms may wish to ensure internal policies and procedures make clear that any concerns relating to non-payment of tax should be escalated internally so they can be considered appropriately before any external disclosure is made. Cultivating a culture of transparency and support around compliance may encourage would-be informants to follow those policies and raise suspicions and concerns internally (rather than approaching HMRC in haste, including where it may turn out those suspicions are misplaced).

What action might HMRC take?

If the regime leads to more credible and actionable tip-offs, businesses may see an uptick in HMRC's investigative actions, including:

• dawn raids (to preserve evidence) in cases of suspected fraud cases; and
• site inspections and information requests (domestic and cross-border) in cases of suspected avoidance.

With the CPS now prosecuting its first case under the corporate criminal offence of failing to prevent the facilitation of tax evasion (see out blog post here), there is every possibility that HMRC will take active steps to investigate that offence where an informant provides information about underlying tax evasion or criminal facilitation. As such, it is more important than ever that businesses ensure they have in place reasonable procedures to prevent criminal facilitation of tax evasion, and ensure they are prepared for a potential visit from HMRC.

In summary: The enhanced informer regime raises the stakes for businesses. Now is the time to review your policies, train your teams, and ensure you're ready for the possibility of increased scrutiny. If you'd like to discuss your arrangements or need support, our team is here to help.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.