Executive Summary
- What’s new: The UK plans to launch a whistleblower incentive programme along the lines of that in the US to encourage individuals to come forward with information about tax evasion.
- Why it matters: The scheme, which will increase incentives, is intended to tackle high-value tax avoidance and evasion, and may result in an increase in the number of UK tax authority enquiries and investigations.
- What to do next: Companies will want to review whistleblowing policies to ensure effective internal reporting channels and protocols, and training and policies for dawn raids may need to be refreshed.
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In the November 2025 Budget, the UK government confirmed that His Majesty’s Revenue and Customs (HMRC) will be introducing a “US-style” whistleblower incentive scheme (Scheme) in the UK. The Scheme is designed to encourage individuals to come forward with valuable information that enables HMRC to tackle high-value tax avoidance and evasion. HMRC already has access to a discretionary payment scheme under the Commissioners and Revenue and Customs Act, to reward whistleblowers. However, payments made under this provision were rare and low.
The enhanced Scheme offers materially increased financial incentives to whistleblowers, geared to the tax collected by HMRC using the informant’s information. The government is pressuring HMRC to close the “tax gap” by launching more investigations into individuals and companies.
The structure of the Scheme reflects HMRC’s preview earlier this year that whistleblowers will need to provide original, credible, verifiable information that is more than just merely speculative. Any information provided must lead to the recovery of additional tax (or penalties) that would not have otherwise been collected. Under the Scheme, HMRC would offer whistleblowers a reward of between 15% and 30% of the additional tax actually recovered (not just assessed) in cases where more than £1.5 million is recouped (excluding penalties and interest). Rewards will, however, ultimately be paid out at HMRC’s discretion.
We anticipate that HMRC will issue further guidance on the Scheme. The guidance provided will be essential for determining how effective the Scheme will be at closing the tax gap, which HMRC estimated to be £46.8 billion in unpaid taxes for the 2023-24 tax year. HMRC reported in June 2025 that Corporation Tax made up approximately 40% of this figure and 14% was attributable to tax evasion.
The government’s continued focus on closing this gap is clear in several initiatives, of which the Scheme is just one. Others include greater resources for HMRC enquiry teams, registration of tax advisers and tightening of the Disclosure of Tax Avoidance Schemes (DOTAS) and Uncertain Tax Treatment (UTT) reporting rules and tax adviser conduct standards.
Not All Whistleblowers Will Be Able To Receive Compensation Under the Scheme
Individuals are ineligible to claim a whistleblower reward if:
- The information provided is already known to HMRC or could have been identified through routine processes, or if the individual is legally required to disclose the information.
- They are, or were, civil servants or government contractors who obtained the information during their employment, or if they are the taxpayer involved in the tax evasion or avoidance, including those who planned or initiated the actions in question.
- The report is made anonymously.
These limitations are likely designed to ensure that only genuinely valuable, original intelligence is rewarded. This approach aims to prevent abuse of the system and to focus HMRC’s resources on actionable leads that would otherwise remain undetected. Note that the exclusions do not include advisers or counterparties in transactions. However, claiming whistleblower rewards in these circumstances may raise ethics or confidentiality issues.
HMRC actively consulted with international counterparts, such as the US Internal Revenue Service (IRS), to leverage best practices and enhance enforcement capabilities when designing the Scheme. The Scheme reflects clear hallmarks of the US whistleblowing scheme.
US Whistleblower Incentivisation Schemes
While the announcement of the Scheme marks a further shift in the UK’s approach to whistleblower incentivisation in the UK, various US authorities have been operating similar schemes since 2006. For example:
- The IRS has had the power to award whistleblower payments, with the IRS Whistleblower Office being created by the Tax Relief and Health Care Act of 2006. The IRS program is distinctive due to its mandatory rewards law: The IRS is required to give whistleblowers 15% to 30% of the amount collected in tax due to the informant’s information, provided that the IRS recovers at least $2 million, including interest and penalties. In the 2024 fiscal year, the IRS paid out $123.5 million in whistleblower awards.
- In August 2024, the US Department of Justice (DOJ) launched a three-year Corporate Whistleblower Awards Pilot Program, covering a broad range of misconduct, including trade tariff and customs fraud, federal immigration law violations, sanctions offenses, procurement fraud, and material support for foreign terrorism and money laundering. The program offers awards of up to 30% of the first $100 million in net proceeds recovered and up to 5% of additional recoveries between $100 million and $500 million, with a maximum possible award of $50 million.
See our 5 August 2024 client alert “DOJ Launches Corporate Whistleblower Awards Pilot Program and Announces a New Incentive for Self-Reports” and our 15 May 2025 client alert “DOJ Unveils White Collar Enforcement Overhaul: New Incentives, Streamlined Policies and Expanded Whistleblower Rewards.”
The U.S. whistleblower model, while influential, has notable shortcomings — particularly around protecting whistleblower anonymity. Former IRS agents have observed that confidentiality is difficult to guarantee, and failed claims have had serious personal and professional consequences. The UK’s proposed scheme similarly requires credible, original information, but HMRC has yet to clarify what safeguards will be in place to protect whistleblower identities.
Jurisdictional and Enforcement Challenges
The UK faces enforcement hurdles because of its proximity to Europe. UK individuals can easily move assets or themselves abroad. Since rewards are based on tax actually recovered, both HMRC and whistleblowers may see limited benefits if assets are moved offshore and recovery proves difficult.
Shift in UK Whistleblowing Incentivisation Strategy
Historically, across various areas of law, the UK has offered only limited rewards to whistleblowers. For example, since 2023, the UK’s Competition and Markets Authority (CMA) has offered rewards of up to £250,000 to whistleblowers who report unlawful cartel activity. The Financial Conduct Authority (FCA) has been considering the issue for over a decade: In 2014 it consulted on whistleblower incentivisation and stated that “there is as yet no empirical evidence of incentives leading to an increase in the number or quality of disclosures received by the regulators.” However in December 2024, the FCA stated that it recognised “the benefit a range of informants can provide in prosecuting criminal offences” and that there were benefits in incentivising whistleblowers, noting that there needs to be careful consideration and scrutiny.
Earlier this year, the Serious Fraud Office (SFO) also called for greater protection and compensation for whistleblowers that risk their jobs, careers and their safety, and its 2025-26 Business Plan explicitly listed whistleblower incentivisation reform as a key priority. The director of the SFO has been a vocal proponent of a US-style whistleblower scheme at the SFO. The introduction of the Scheme may provide further impetus for the SFO to implement such a scheme.
The Potential Taxation of Whistleblower Payments by HMRC
The precise tax treatment of whistleblower payments remains uncertain; payments may fall within the miscellaneous income provisions of the Income Tax (Trading and Other Income) Act 2005, given that they will be made pursuant to an agreement or arrangement in return for the provision of the informant’s information.
HMRC guidance and relevant case law indicate that payments made as a reward for services rendered — rather than as gratuitous gifts — are likely to be taxable. The formalised structure of the Scheme as well as the clear link between the tax recovered and reward offered could each support the view that these payments constitute taxable income for the recipient.
How Can Businesses Be Prepared
With the Scheme now in place and a trend towards incentivising whistleblowers in the UK, companies should consider taking proactive steps to mitigate the potential increase in the number of tax enquiries and investigations, including:
- Reviewing whistleblowing policies to ensure effective internal reporting channels, with appropriate escalation and whistleblower protections in order to foster an environment where employees feel comfortable reporting internally.
- Establishing clear protocols for handling disclosures made by whistleblowers.
- Updating internal investigation procedures to align with HMRC’s expectations.
- Reviewing and refreshing dawn raid policies and training so that the company is prepared for any unannounced inspection.
- Assessing employment terms to ensure they do not improperly restrict lawful disclosures of confidential information by whistleblowers.
- Strengthening settlement agreement provisions, including confidentiality provisions, with departing employees.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
Ryan D. Junck, Partner, Skadden
ryan.junck@skadden.com
