Budget: Treasury focused on ‘closing tax gap’ with US-style whistleblower scheme
Rachel Reeves revealed in her Budget that the government continues to focus on closing the tax gap, with new measures set to raise an additional £2bn in tax revenue by 2029-30.
The Chancellor pledged that the government will target “fraudulent businesses” that don’t pay their tax by providing HMRC with new compliance powers.
A large number of HMRC administration, compliance, and debt-collection measures were announced, estimated to raise an additional £2.3bn by 2029-30.
The reforms, on top of those revealed in the Budget last October, are set to raise the total additional revenue from closing the tax gap to £10bn in 2029-30.
Reeves pursues those who try to bend or break the rules by modernising the tax system.
A report earlier this year estimated that tax evasion cost £5.5bn in 2022–23, equivalent to around 0.7 per cent of all taxes owed, but as noted by a Public Accounts Committee (PAC) report, this figure could be “just the tip of the iceberg”.
US-style reward scheme for informants
One of Reeves’ plans included revealing a US-style whistleblower scheme to combat large-scale tax fraud, which was reported earlier this month.
The Budget explained that it will be launching a “strengthened reward scheme” for informants who provide valuable information, which allows HMRC to tackle high-value avoidance or evasion, modelled on the US scheme.
Lloyd Firth, partner at WilmerHale, said: “Leaving aside detailed technical considerations of how the scheme will work in practice, this is a welcome and very positive development.”
“This should [also] make the job of lobbying for change to the whistleblower incentive frameworks of other UK enforcement agencies, such as the SFO, that much easier,” he added.
It was also highlighted in the Budget that, to reclaim this lost tax revenue, the government will undertake additional high-street enforcement activity, crack down on illicit vapes, and disqualify “more rogue” directors who abuse the insolvency process to evade tax.
On top of this, following an “extensive consultation”, the government will legislate to further close in on promoters of tax avoidance.
HMRC is set to receive even more investment in its debt management work and new tech to modernise the tax system, increasing the use of data-driven prompts.
Chris Denning, tax partner at MHA, said: “Virtually every Chancellor highlights a focus on clamping down on tax avoidance and closing the tax gap.
“HMRC have had all the legislative powers they need to do this for a number of years now, so this is nothing new.”
“Any further measures to achieve this need to be practical, including reviewing our very complex tax code, which makes it easier for mistakes to be made and words to be interpreted in less favourable ways as far as tax yield is concerned,” he added.
While speaking, the Chancellor said the government has recovered almost £400m from “dodgy pandemic spending and contracts”.
She pointed towards ‘dodgy covid contracts’, stating that these were “Tory contracts, handed out to Tory peers and agreed by Tory ministers”, which drew jeers and shouts from Conservative members.