The Back Story
We first reported the £billion Online VAT Fraud to HMRC in early 2014. HMRC ignored us until we gained the backing of MPs and Lords including David Gauke MP, Nick Herbert MP, Chris Heaton-Harris MP, Lord Leigh of Hurley, Lord Lucas, Meg Hillier MP at the PAC and Sir Amyas Morse at the NAO. We had meetings with the heads of the EU VAT Unit in Brussels too.
We gained a lot of national media coverage on how HMRC was ignoring the fraud. In November of 2015 our campaign kicked off with an expose on Radio 4.
HMRC finally engaged with us on the 17th of November 2015 when we were invited to HMRC’s head office to meet up with senior officials to discuss the fraud.
HMRC were still completely ignorant on how it worked and the scale of it. Lin Homer, the then head of HMRC, explained to MP’s that online retail was in the “ether” and difficult to understand.
Between 2015 and 2019 we continued to engage and meet with HMRC and the Treasury, providing them with a mother-lode of intelligence, analysis and evidence.
HMRC introduced several failed policies to stop the fraud. It was only in November 2019 that the government announced they would make Online Marketplaces collect VAT from overseas sellers and this was after we gave ministers detailed proposals as to how the problem could be resolved.
The new law is now bringing in £1.4bn a year in VAT, five times more than HMRC had estimated.
Public Accounts Committee
In 2016 we were asked by the Public Accounts Committee (PAC) to help them assess the impact of Online VAT Fraud and HMRC’s performance in tackling it. We provided in depth reports, analysis, intellegence, and briefings that were used as evidence in the PAC hearing “Tackling online VAT fraud and error”. The hearing concluded the following:
- HMRC’s estimate of the impact of online VAT fraud is out of date and flawed.
- HMRC has been slow to get to grips with the problem and is not yet doing enough to tackle it.
- Online marketplaces and HMRC are not doing enough to work together to tackle the problem, and online marketplaces continue to earn their commissions and therefore profit from people who are defrauding the British taxpayer.
- It is not clear how HMRC will assess the effectiveness of its new powers in reducing the level of online VAT fraud or whether it will clawback VAT unpaid in previous years from newly registered traders.
- HMRC does not know how many fulfilment houses are in the UK and is therefore unable to systematically target the most blatant route for online VAT tax evasion.
- Online VAT tax evasion is already a complicated issue, and we are concerned about HMRC’s ability to deal with new challenges to the problem which may be posed by the UK’s exit from the EU.
The National Audit Office
In conjunction with the PAC hearing, we helped The National Audit Office carry out an investigation “VAT evasion by overseas online retailers” looking at the risk of VAT (Value Added Tax) evasion by overseas online retailers. The investigation focuses on HMRC’s role in administering the UK VAT system, including managing and reducing risks to the collection of tax revenue. The NAO concluded the following:
Online VAT fraud and error causes substantial losses to the UK Exchequer and undermines the competitiveness of UK businesses.
Intelligence, Analysis, Data & Evidence
Over the years we provided HMRC with intelligence, analysis, data and evidence compiled from our own research and reports we had received via our website. The amount of intelligence, data and the sums involved were eye watering. Thousands of sellers owed billions in unpaid VAT.
HMRC started to use the intelligence and data on our website on a daily basis from November 2017 and racked up over 3470 sessions on our site: See The Times article HMRC relies on amateurs to fight VAT fraud.
Soon overseas sellers started appearing on HMRC list of deliberate tax defaulters, with some individuals owing HMRC over £6,000,000 in unpaid VAT.
HMRC was encouraged by our MP’s to reward us for all our work and for the huge amount of VAT that was being recovered as a result. On 24 July 2017, Ruth Stanier, the then Director of Customs & Indirect Tax, agreed they would reward all three of us. Ruth Stainer said at a later meeting we could receive further rewards in the future.
In September 2017 two of us received £15,000 each. Richard Allen did not receive a reward. HMRC gave no explanation to anyone – including Richard’s MP who wrote to the Head of HMRC on several occasions – as to why Richard was being excluded. We split our reward with Richard.
Our MP’s and the Public Accounts Committee were also extremely disappointed with the size of the reward since it barely covered our costs of running the campaign. They challenged HMRC about the reward process. HMRC’s response was that they felt the reward was sufficient and they gave no explanation as to the reason why Richard did not receive any reward.
Meg Hillier questioning Jim Hara
Watch Meg Hill MP questioning Jim Harra, Director General of HMRC, about our rewards. He never got back to her.
The Reward Process
In a letter to Chris Heaton-Harris MP dated the 22nd of February 2019, Sir Amyas Morse Comptroller and Auditor General explained how rewards are operated. He stated that the National Audit Office (NAO) had not looked at this issue before and noted that:
“HMRC told us that it pays rewards to a very small percentage of people who provide the department with exceptionally valuable information. In 2017 – 18, HMRC paid £343,000 to those who provided information. The costs for payments of awards are met from HMRC’s Customer Compliance Group. This Group is the part of HMRC which is responsible for compliance for all customer groups, from large businesses to individuals, as well as the Department’s counter-avoidance and fraud investigation functions. HMRC told us that it does not publish the amounts it pays for awards in its Annual Reports and Accounts as it is not a key performance metric, nor is it required of HMRC on a public accountability or financial reporting basis. However, HMRC told us that it does routinely provider this information in response to Freedom of Information requests and MP correspondence.
In terms of authorisation levels, individual awards up to £5000 can be approved by a Senior Officer; amounts up to £10,000 need approval at Grade 7; amounts up to £50,000 need approval at Grade 6; amounts up to £100,000 need approval at Deputy Director level; amounts up to £250,000 need approval at Director Level; and anything over £250,000 needs Director General authorisation”.
Sir Amyas goes on to explain in his letter that when assessing awards an application is made to a ‘separate and independent’ team within HMRC who refer to an ‘award guide’ and assess the facts of the case including the supporting evidence. The ‘award guide’ sets out the fundamental considerations when deciding the level of awards although HMRC state that the guide is “relatively generic across all law enforcement agencies, to help standardise the process”. The factors that determine whether to pay an award and the amount include but are not limited to: the tax recovered; the estimate of the loss of revenue prevented; the provenance of the information; and other measurable benefits such as the time saved in working compliance cases. HMRC places strict restrictions on access to the guide “to minimise the risk of undue or inappropriate influence on the fundamental considerations of the award process”.
Rewards in Press
The Times – HMRC refuses to reward tax whistleblower:
Businessman denied financial reward after exposing loopholes that cost millions of pounds in lost revenue
The Times – Shop your spouse as a tax cheat and receive £250k:
A tipster would only get £250,000 if they provided “mother-lode material”, adding: “It would have to be enough to close down a company, or something.
Civil Service World – HMRC pays out £350,000 in a year for tax fraud tip-offs:
Members of the public who provide “exceptionally helpful information” on tax evasion can receive payments, HMRC says. HMRC has the power to give financial rewards to people who give information that helps the department root out tax fraud and evasion.
Are HMRC’s Rewards Discretionary or Discriminatory?
HMRC have claimed that the rewards they gave us were based upon the value of the information provided as per their reward guide. The flaw in this statement is self-evident because even though all three of us provided the information only two of us were rewarded. How is this possible ? It cannot be logically explained.
It seems to us that HMRCs reward process has no rhyme or reason regarding the way in which it allocates or calculates rewards. In our case it appears to have been applied in a discriminatory manner. If all three of us provided the information all three of us should be rewarded. There is no way you could arrive at any other conclusion.
Furthermore HMRC reneged on their promise to reward all three of us.
We spent six years getting HMRC to take action against Online VAT Fraud. This was all self funded, whilst we watched our businesses become seriously damaged by VAT fraud that only existed because of HMRC’s inaction. The rewards we received were less than the cost of running the campaign.
HMRC are willing to reward a spouse £250,000 for dobbing in their partner, but are not prepared to properly reward individuals who were instrumental in helping them close down online vat fraud, protect UK businesses and bring in £1.4 billion of additional revenue a year.
A mother-lode of discrimination.