His Majesty's Revenue & Customs' new scheme that pays people for information on tax dodgers will backfire on small firms, according to business owners.

In the Autumn Budget, Rachel Reeves announced a ‘strengthened reward scheme’ which offers cash to those who report tax avoidance or evasion.

Those who report tax fraud which could lead to the collection of at least £1.5million, could receive up to 30 per cent of any tax recovered. 

HMRC says rewards are given at its discretion and are not guaranteed, however.

While the scheme is designed with large companies and wealthy individuals in mind, business owners are warning that small firms could be targeted falsely and maliciously.

Tony Redondo, founder of Cosmos Currency Exchange, told the Newspage agency that taxpayers should be concerned about the time and cost.

‘In practice, I fear a lot of time and cost is going to be wasted on a lot of spurious investigations as disgruntled ex-employees, embittered ex-spouses and sacked advisers nursing a grudge dob in their targets via exaggerated, malicious or outright vindictive tip-offs, which HMRC will have to sift through,’ he said.

Any tip-offs will need to meet HMRC’s requirements. You cannot get a reward if you’re involved in the tax fraud; the information you provide may already be known to HMRC; or if you’re acting on behalf of someone else, among others.

The scheme is part of a wider Government crackdown on tax fraud, which is estimated to cost the Treasury up to £47billion a year.

Sam Alsop-Hall, chief strategy officer & co-founder at consultant Clive Henry Group also believes there is a risk many people and entities could be wrongly accused.

He said: ‘HMRC’s plan risks turning taxpayers into bounty hunters, and that cannot happen without strong safeguards. Rewards for reporting tax evasion may help uncover wrongdoing among the ultra-wealthy and big corporates, but there is a serious issue being ignored.

‘What protections exist for individuals or businesses who could be hit with false or malicious reports? People can quite literally make things up, drag others through lengthy processes and even into court with little or no evidence.

‘The emotional and reputational damage from that sort of behaviour is enormous and, once financial incentives are involved, the risks grow even further.

‘HMRC says it reviews information carefully, but the public deserves clarity on how baseless claims are filtered and what support exists for those wrongly accused under the scheme.’

If you believe a person or business is deliberately not paying enough tax, HMRC will ask you to report how you know about it and what your relationship is to the individual or business. You will also need to know the total value, or estimation, of the activity.

An HMRC spokesperson said: 'The Government has strengthened our scheme for rewarding informants to encourage reporting of suspected high-value tax fraud and tax avoidance cases of at least £1.5m in tax.

'We value the information we receive and urge anyone with information about tax fraud to report it to us online by going to GOV.UK and searching "Report fraud HMRC".