Blowing the Whistle

How important are informers to HMRC?

Tax investigations start for a number of reasons…

• Random selection – HMRC do review a number of tax returns each year on a random basis.
• Specific information – HMRC have acquired specific information about a business or a taxpayers affairs. This may have come from an informer or details acquired during an enquiry into another person’s tax affairs.
• HMRC are aware of inherent risks of a business, e.g. a fish and chip shop that is primarily a cash business where cash concealment of takings is more easy.
• HMRC software has the ability to interrogate their databases and can identify anomalies, ie a business’s results do not compare well to the accounts of similar businesses.

So how integral is the role of the informer to HMRC in their pursuit of tax evasion? Well not that vital is the answer. HMRC do offer financial incentives in the form of rewards to informants but their tax evasion hotline is not key to their current investigation exploits.

In 2011/12, HMRC paid approx. £375,000 in return for information that gave rise to additional revenues being collected. Such payments however are discretionary and there does not appear to be any set criteria for the level of reward.

Most informants tend to be scorned ex-employees or spouses who see grassing to the Revenue as an act of vengeance.

Are HMRC missing a trick? The USA’s Internal Revenue Service (IRS) offers whistleblowers 15 – 30% of any additional tax raised and the Canadian government reward those who help uncover substantial international tax evasion; defined as in excess of CA$100,000 lost revenue; up to 15% of the tax recovered.

Such incentives may be appropriate in certain circumstances but they could also be more trouble than they are worth if the information is unreliable and borne out of malice.