Press Release - HM Customs & Excise: Tackling VAT
Fraud
3 March 2004
HM Customs and Excise have increased their efforts to tackle
losses from fraud and error on VAT, which in 2002-2003 they
estimated at £11.9 billion. This was an increase over the £10.6
billion they estimate to have been lost in 2001-2002, but there are
signs of improvement with a reduction in one of the most serious
types of VAT fraud, missing trader fraud.
According to today’s report from the National Audit Office,
Customs estimate that losses from VAT missing trader fraud have
gone down from between £1.77 billion and £2.75 billion in 2001-02
to between £1.65 billion and £2.64 billion in 2002-03. Customs have
increasingly targeted their work to detect and stop this type of
fraud whereby bogus traders register for VAT, buy goods VAT free
from another EU Member State, sell them on at VAT inclusive prices
and then disappear without paying over to Customs the VAT they have
collected.
Customs estimate that in 2001-02 between 125,000 and 180,000
traders operating in the shadow economy had not registered for VAT
resulting in losses of £400 million to £500 million. By working
closely with the Inland Revenue and Department for Work and
Pensions, Customs detected in 2002-03 almost 4,000 traders who
should be registered for VAT and identified additional revenue of
£65 million. They also ran a one-off incentive scheme from April to
September 2003 to encourage businesses to come out of the shadow
economy voluntarily. This led to a further 3,900 traders
registering by the end of 2003, with additional revenue of around
£26 million. The report recommends that Customs should disseminate
the lessons learned to help other Departments assess the value of
similar schemes.
Customs estimate that between £2.5 billion and £4 billion was
lost from general non-compliance by registered traders in 2001-02.
These include losses from businesses making mistakes on their VAT
returns and from deliberately under-reporting their VAT. Through
their annual programme of checks on traders, Customs identified
additional VAT payable of over £3 billion in 2002-03. Customs are
providing improved guidance and advice to help businesses comply.
They are also looking at how to update the estimates of loss to
assess whether their response is proportionate to the risks.
Customs seek first to stop VAT frauds to prevent any further
losses and may impose a civil evasion penalty (a fine) or prosecute
those involved. The number of cases where civil evasion penalties
have been imposed has fallen from 898 in 1997-98 to 276 cases in
2002-03, the result of Customs’ targeting more complex and larger
value cases. The number of criminal prosecutions finalised in court
has remained broadly constant in recent years. Of the 86 completed
prosecutions for VAT fraud in 2002-03, 69 resulted in convictions.
Cases successfully prosecuted took more than two years on average
to complete, from investigation to prosecution. The lack of
availability of court time can cause delays and the report
recommends that Customs should assess with the Department for
Constitutional Affairs whether there are opportunities to reduce
the time taken.
Head of the National Audit Office Sir John Bourn said
today:
"Each year the public coffers are cheated of billions of
pounds as a result of VAT lost through fraud and error. This is
money which could be used to improve public services. Customs are
working hard to reduce these losses, through new measures to
improve compliance by traders and to detect and stop fraud. They
have achieved some progress, for example on VAT missing trader
fraud, but success will ultimately turn upon whether they can
secure a sustained reduction in the level of losses."
Notes for Editors
- Customs estimate that the amount lost on VAT could be around
£11.9 billion in 2002-03, which includes losses from fraud and
errors by traders in calculating the amount of VAT to be paid to
Customs. The Government has set Customs a target to stop the
long-term growth in the size of the overall VAT gap and to cut it
from 15.7 per cent in 2002-03 to 12 per cent of the total amount
that could be theoretically collected from VAT by 2005-06.
- Traders are classified as operating in the shadow where their
turnover exceeds £56,000 but they have not registered to pay
VAT.
- Press notices and reports are available from the date of
publication on the NAO website, which is now at
www.nao.org.uk. Hard copies can be obtained from
The Stationery Office on 0845 702 3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 16/04
All enquiries to Barry Lester, NAO Press Office: Tel: 020 7798
7937
Mobile: 07748 181692