Surge in whistleblower reports to HMRC targeting innocent businesses

Public concern over tax avoidance seems to be on the rise again, perhaps because of the cost-of-living crisis or the aftermath of COVID. There’s been a sharp increase in the number of public complaints to HMRC about tax cheats; a 47% increase over the last year, from 106,920 in 2021/22 to 157,270 in 2022/23*.

That astonishing increase is likely to lead to more investigations by HMRC into suspected underpayments of tax. Firstly, because HMRC has more “leads” to investigate. Secondly, as a public body, HMRC is likely to respond to what it perceives as the public mood.

Unfortunately, while some of these whistleblower reports are identifying genuine tax cheats, many innocent businesses may also be wrongly accused and subsequently embroiled in an expensive and stressful tax investigation.

Tax investigations into innocent taxpayers are unfortunately not rare. Cases where the taxpayer was proved to be innocent have accounted for between 31% and 47% of all tax investigations over the past two years.

Reports of tax fraud can come from a diverse range of sources including disgruntled current and former employees, former partners/spouses of management, dissatisfied customers and even business competitors. Therefore, even an individual or business that is tax compliant needs to be aware of the risks of being reported to HMRC and should be prepared in the event of a tax investigation.

HMRC pays whistleblowers based on the quality and usefulness of their information. The tax authority paid out over £509,000 to individuals providing evidence about tax fraud over the past year, up from £495,000 in 2021/22**. This financial reward may be an incentive for more whistleblowers to come forward to offer evidence against businesses or individuals.

The risks to businesses targeted for an investigation are substantial. HMRC can issue penalties of up to 100% of the amount the business has failed to pay or pursue prosecution in the most serious tax fraud cases. It can also publish details of organisations which deliberately underpaid tax.

Even an investigation that ends in exoneration can last for months, heaping significant stress and expenses on the business or individual accused. An HMRC tax investigation is often a tense experience for the taxpayer accused, who must typically invest significant time and money in compiling their defence, often clocking up hours and hours of billable time of a tax adviser or other professional to support them.

We offer our clients the opportunity to protect themselves against the cost of most tax investigations by subscribing to our Tax Enquiry Protection Service. To find out more, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

*Year-end: 30 June

**Year-end: 31 March

Sally Farrow