Over the last five years, HMRC has paid out nearly £2m to informants who reported incidents of tax-dodging to the tax authority.

A freedom of information (FOI) request has revealed that since 2016, HMRC has paid out £1,925,660 to informants and in the last year alone has paid a total of £400,000 for the tip-offs.

HMRC’s fraud hotline, which enables people to report suspected tax abuse, has so far received more than 120,000 reports of alleged tax wrongdoing in the last year.  

The FOI obtained by law firm RPC showed that not all tip-offs made via the fraud hotline result in a payout.

In its reports, HMRC said a range of factors determine the exact amount whistleblowers are awarded, such as the tax recovered, how much estimated revenue loss was prevented and other benefits, such as time saved in working cases.

HMRC does not report specifically on the additional taxes collected from whistleblower payments.

In its 2021 annual report, HMRC estimated that £5.2bn of the money it paid out as part of the furlough scheme has been paid out for false claims.

Adam Craggs, partner and head of tax, regulatory and financial crime at RPC said: ‘HMRC is fully engaged in clamping down hard on tax evasion and will use any information that can help it catch tax evaders and those who assist in such criminal activity. Paying informers for helpful information is part of that process.’

RPC says that the recent Pandora Papers' leak of almost 12m documents relating to the affairs of a large number of individuals, including world leaders, high net worth individuals, and celebrities, demonstrates just how valuable information from external sources can be to tax authorities such as HMRC.

Michelle Sloane, partner at RPC said: ‘The financial reward available for providing data to HMRC may attract more informants to contact HMRC. Those with personal knowledge of a company’s or individual’s illicit financial or tax arrangements may be motivated to come forward if they think they will receive a financial reward.’

HMRC has the power to recruit sources under the Investigative Powers Act 2000 and does have the ability to pay out if the information provided helps it to recover money that has been lost due  avoidance and evasion.

HMRC is highly guarded about the information it receives and its sources but claims to have protected hundreds of millions of public money through its ‘covert human intelligence sources’ and was employing various compliance tools to tackle furlough fraud.

However, the tax authority stated that it could not comment on specifics because it did not ‘want to give insight to criminals’.

An HMRC spokesperson said: ‘There will be times when it is appropriate for us to make payments to individuals for providing us with information that helps us tackle avoidance and evasion. We make these at our own discretion, based on what is achieved as a direct result.

‘We value the information we receive from the public and business community and we urge anyone with information about tax fraud to report it to us online or call our fraud hotline on 0800 788 887.’