The amount of money paid to informants who inform on those who avoid tax has increased by 50% to a record high of £605,000. According to an article recently published in the Daily Telegraph 250 people a day are tipping off the authorities, many of whom are embittered ex-spouses or former work colleagues.
A hotline for tax informants was set up in April 2006, and although HMRC investigate every single allegation of tax avoidance, only a small minority of informants are actually rewarded. Indeed, the majority of those who inform on others do not do so for a cash reward, but because they think it is the ‘right’ thing to do. A spokesperson for HMRC has said that cash rewards are “discretionary” and depend on the amount of money recovered. The larger the sum recovered, the greater chance there will be of a reward. Informants can expect to receive a sum in the region of £50 to £1,000 if the information they provide leads to the recovery of a large amount of tax. Adam Craggs who is a partner at law firm RPC has said that the increase in cash payments from HMRC is due to greater public awareness. He has argued that “many members of the public have an unrealistic view of the value of their information.” In reality only a small percentage of the 97,036 people who informed on others last year received a cash reward.
The HMRC has had to resort to giving cash rewards, as they came under increasing pressure from the Treasury to collect the billions which was lost to tax fraud. The giving of cash rewards has been described by Richard Murphy who is Director for PCS the union which represents the staff at HMRC as “one of the cheapest ways we get information on those who are evading…it massively shortcuts the work of the HMRC.” The system has been likened to that of the US Internal Revenue Service where informants are able to receive up 30% of any final settlement. Whilst the HMRC scheme has been somewhat controversial, surely a reduction in tax avoidance can only be positive?
The above is not legal advice; it is intended to provide information of general interest about current legal issues.