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The millions HMRC pays to informants may not be value for money

Camilla Hodgson
Tax avoidance UK

Getty

LONDON – The UK's tax collector has paid nearly £2 million for information about tax evasion since 2013, but whether or not this represents value for money is unclear, according to a leading tax lawyer.

HM Revenue and Customs (HMRC) did not disclose the number or value of individual payments, which are made using public money, and has previously been unable to say how much money it recovered using paid-for information.

"I'm not sure how much scrutiny there is," says Adam Craggs, head of tax disputes at law firm RPC, so it is "hard to know" whether the payments are worthwhile.

It would be "sensible and prudent," he suggests, for there to be more oversight of the payments, and perhaps an audit.

HMRC said disclosing how many informants the payments related to could "prejudice the assessment or collection of any tax or duty or of any imposition of a similar nature," and "endanger the safety of any individual."

But Craggs says these reasons are "not credible," and the question is "not unreasonable, as long as you're not asking for their names."

Pressure on HMRC to tackle financial crimes has mounted since the Panama Papers scandal, and the tax collector has been asked to triple the number of criminal investigations for "serious and complex tax crime" and recover an additional £7.2 billion in tax by 2020/21.

But gathering the information required to prove individuals and businesses have failed to pay their taxes is a complex business. According to Craggs, HMRC "normally relies on being tipped off for this sort of information," although it sometimes comes as a product of its own enquiries.

Those who blow the whistle to HMRC tend to be disgruntled employees or ex-employees, says Craggs, usually from senior or accounting roles, who "know where the bodies are buried." Ex-husbands and ex-wives are also common, and tipping off HMRC is sometimes used as a "threat" during divorce proceedings, he says.

According to Paul Noble, head of tax investigations at law firm Pinsent Masons, "some people just have an axe to grind."

HMRC does not advertise payments. Unlike in the United States, where informants are paid based on the amount of money their information recovers, informants in the UK usually have to ask to be paid. HMRC will then "make a judgment," and pay if "circumstances are right," says Noble.

Noble says the payments do represent value for money, and suspects the majority of payments are "at the lower end, definitely," likely between £0-£10,000. He points out that in the last financial year, HMRC received over 113,000 reports from members of the public, most of which likely were not paid for.

Given the potential backlash from blowing the whistle on an ex-colleague or partner, says Noble, "quite a lot of people want to be anonymous," and won't provide the personal information required for HMRC to make a payment.

A bigger concern, he says, is whether the tax collector has the resources to deal with all the information it receives.

HMRC paid £421,460 for information in 2016/17, and £460,433 in 2015/16. That compares to a spike of £605,000 in 2014/15, and to £402,000 in 2013/14.

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