Rewarding the whistleblower: the UK government’s commitment to closing the tax gap

HM Treasury has announced a reward scheme to encourage tax non-compliance reports to HMRC as part of the government’s commitment to closing the £39 billion gap between tax owed and tax collected.

James Murray MP, Secretary to the Treasury, trailed the scheme in his speech on 11 March 2025, marking the 20^th anniversary of HMRC. He said the scheme would target serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes. Read the full speech here.

The new scheme will take inspiration from successful US and Canadian whistleblower model schemes and will complement the existing UK scheme with informants rewarded with a percentage of any tax collected as a result of their actions.

It has the potential to enable HMRC to collect substantial tax. Subject to its terms, it may also engage the interest of employees or financial advisers of high-net-worth individuals or large corporations, who may be disgruntled or simply keen to earn remuneration in return for information which might never otherwise come to HMRC’s attention.

We consider certain implications of the scheme for professional advisers at the end of this article.

HMRC’s current reward scheme

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 the function of [HMRC]”.

The current HMRC reward scheme is discretionary, not linked to the amount of tax collected as a result of the information, and minimally publicised. It is thought that HMRC made reward payments in 2023/2024 of approximately £980,000.

The US

The US reward scheme is a highly complex and evolving construct. How much of it the UK seeks to replicate and how soon remains to be seen. HM Treasury’s reference to the US and Canadian models “complementing” HMRC’s existing scheme suggests that HMRC may simply select convenient elements of those models to plug in to its current scheme, rather than be laying the groundwork for anything more substantial.

The scheme is run by the Whistleblower Office of the Inland Revenue Service (“IRS”), which pays monetary awards to eligible individuals whose information is used by the IRS. Qualifying claims must provide specific and credible information regarding tax underpayments or violations of internal revenue laws which lead to proceeds (defined as penalties, interest and additional tax).

Generally, IRS will pay an award of at least 15% but not more than 30% of the proceeds collected attributable to the information submitted by the whistleblower. The award percentage decreases for claims based on information from public sources or if the whistleblower planned and initiated the actions which led to the non-compliance.

To qualify for an award, the information must relate to a tax non-compliance matter in which the proceeds exceed US$2 million and relate to a taxpayer whose gross income exceeds US$200,000 for at least one of the tax years in question. If these criteria are not met, IRS still has a discretion to make an award.

In year ended 30 September 2023, IRS paid whistleblowers 121 awards totalling US$88 million attributable to information that resulted in proceeds collected of US$388 million. The Whistleblower Office comprised 49 full-time employees.

IRS acknowledges that it receives hundreds of submissions from whistleblowers which are purely speculative, and which IRS can readily dismiss. The Whistleblower Office expends significant resources responding to such informants (often repeatedly), which includes litigation to defend its decision not to pursue a submission, or to resolve a dispute over the availability or sum of an award.

IRS must report annually to Congress, to include any legislative or administrative recommendations in relation to its programme. Recent recommendations have focused on the sensitivities around the disclosures which the Whistleblower’s Office is authorised by statute to provide to the whistleblower: notification that the information submitted has been referred for an audit or examination, notification if a payment of tax is received for a tax liability related to information provided by the whistleblower, and notification of the status and stage of any action related to the information provided by the whistleblower.

IRS is particularly concerned that there have been no statutory restrictions on the re-disclosure of taxpayer information provided to a whistleblower by IRS during administrative or judicial proceedings brought by the whistleblower, and where, in order to defend such proceedings, disclosure procedures require IRS to reveal extensive amounts of data from the third-party tax payer’s files, who are not themselves party to the proceedings, and may not even be aware that their confidential returns and data may be disclosed to whistleblowers. To date, resolution of those issues has rested in the discretion of the judge on a case-by-case basis.

IRS conducts a “taint review” of information submitted by a whistleblower to identify and evaluate potential evidentiary, ethical, legal or privilege concerns associated with the whistleblower’s information, in order to insulate the investigation function from information which could jeopardize subsequent adjustments and collection activity. It acknowledges that relationships which may result in privileged communications include lawyer/client relationships, tax practitioner/client relationships, and spousal relationships.

Generally, IRS will not accept any information from a whistleblower regarding a taxpayer when the whistleblower is also representing the taxpayer in any capacity during any administrative matter pending before IRS. If a taxpayer’s representative makes an overture about becoming a whistleblower, IRS is not allowed to have further interaction with that person as the taxpayer’s representative, but will not explain to the taxpayer the reason for excluding that person from the matter to protect the whistleblower’s confidentiality. It will be the responsibility of the whistleblower to explain why they are not participating in the matter, and IRS will not have any further interaction or contact with or receive any further information from that taxpayer’s representative as a whistleblower. It is not difficult to envisage circumstances where an employee of a taxpayer’s tax advisers might be tempted to blow the whistle, only then finding they have to self-exclude from the taxpayer’s affairs, devising a reason which does not tip-off the taxpayer to the fact of their having blown the whistle, and then not being able to follow up with IRS until the relevant tax enquiry is resolved.

Canada

The Canada Revenue Agency operates a discretionary reward programme in relation to offshore tax non-compliance, awarding between 5% and 15% of a minimum amount of tax collected of CAD$£100,000. It publishes significantly less about the programme than the US, although notably it does publish the factors which will affect the percentage amount of the award, for example, the quality and relevance of the information, the level of co-operation from the informant, the value of the information to the Agency, timeliness of the report, and the informant’s role in the tax non-compliance. Due to taxpayer confidentiality, the percentage awarded will not be revealed to the informant, simply the sum of the reward.

Conclusion

The stakes of such a scheme in the UK are potentially high: both in terms of risk and reward for a whistleblower, and in terms of resource costs weighed against potential benefit for HMRC. The government’s press released promised that “Informants could take home a significant amount of compensation. This will be equal to a proportion of the tax take, ensuring that the scheme raises more money than it costs.”

Scope

HM Treasury has not indicated the scope of subject matter which may qualify a report for reward. It has spoken of “serious non-compliance” which perhaps suggests a minimum threshold of tax to be collected in order to engage consideration of a reward. If the Minister’s description of what the reward scheme is intended to target is prescient, then it seems that it will encompass tax avoidance schemes (consistent with the current reward scheme).

If anything, approximating to the US scheme is envisaged, that would likely require a separate HMRC business unit, equipped for investigation with clear lines of authority and accountability, and a dispute resolution process for informants.

Confidentiality

Informants will generally be keen to achieve confidentiality as to their identity. HMRC can indicate that it will strive to achieve that but will not be able to guarantee it.

If, as in the US, the scheme might give rise to a satellite litigation process between informant and HMRC disputing the grant or sum of any award, that is unlikely to be heard by the UK courts in private. The courts are spare in their grant of anonymity orders and will only grant them where they consider anonymity is necessary to secure the proper administration of justice and to protect the interests of the person seeking anonymity. It may be that HMRC devises a non-public administrative process to resolve such a dispute, although that will, of course, always be susceptible to onward challenge in the courts, most obviously by way of judicial review, which will still give rise to the same issues.

HMRC will need to be alive to avoiding the disclosure of the tax-payer’s confidential information to an informant, whether in ongoing engagement with them during investigation, or in any subsequent dispute about the informant’s award. Such activities would need to constitute a statutory function of HMRC within the meaning of section 18 of the Commissioners for Revenue and Customs Act 2005, which only permits a disclosure by HMRC of information held by it in connection with its functions as therein defined.

Outwith the scope of this article, but of critical importance to any employee making a whistleblowing report, will be their rights under the Public Interest Disclosure Act 1998 and the Employment Rights Act 1996, most obviously protection from detriment.

Professional Advisers

Accountants and tax advisers will already be alive to their obligations to prevent the facilitation of UK or overseas tax evasion (Failure to Prevent Tax Evasion (the Criminal Finances Act 2017)), the importance of having reasonable procedures in place to prevent such evasion, and their reporting obligations under anti-money laundering legislation.

What happens where a professional adviser, perhaps a junior employee in a large client team, tempted by the possible rewards of the new scheme, resolves to report their firm’s client to the reward scheme? Undoubtedly, HMRC will need to have in place a non-engagement response along the lines of that of IRS already described, including being alive to the potential for it to receive information or material which is privileged to the taxpayer, and the need to plan how to handle that. It may need to make expressly clear that information submitted by a current or former professional adviser will not qualify for reward.

Any regulated member seeking to make a report to the reward scheme should think carefully about their professional obligations. For example: the ICAEW Fundamental Principle of confidentiality requires an ICAEW member to respect the confidentiality of information acquired as a result of professional and business relationships and not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose. Nor may the member use the information for their personal advantage or that of third parties.

The anti-money laundering regime provides a statutory code to determine when relevant disclosures must be made to the authorities. The ICAEW publishes Professional Conduct in relation to Taxation to give guidance to its tax practitioner members as to their disclosure obligations.

An HMRC reward scheme would not obviously be the right recipient of a disclosure of a client’s tax non-compliance, either singly or in tandem with a Suspicious Activity Report. It would be difficult for a professional adviser to refute a charge that making a disclosure to the reward scheme alone is self-evidently for their personal advantage, and in breach of at least the fundamental principle of confidentiality, as such a disclosure would not be effective to discharge the adviser’s legal and professional duties under the anti-money laundering legislation.