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HM Customs and Excise: Improving VAT Assurance

Sir John Bourn, head of the National Audit Office, today reported to Parliament on HM Customs and Excise’s collection of £29.6 billion VAT from the majority of the UK’s 1.6 million registered VAT traders.

The Department’s strategy has been to shift auditing effort towards those traders presenting the highest risks to the revenue and, since 1994-95, the net additional revenue discovered by assurance staff has increased from £5.98 per £1 spent to £7.48 in 1998-99. Sir John’s report highlights the scope for further improvement.

Sir John notes that between 1992-93 and 1998-99 VAT assurance staff numbers have declined from 4548 to 4179 and the number of audits undertaken by them have fallen from 350,000 to 180,000 per annum. Nonetheless, the net additional revenue generated by these audits increased from £862 million to £992 million at constant prices.

The National Audit Office conclude that the Department should:

  • look to further increase the proportion of high and exceptional traders audited each year, so as to maximise the additional revenue assessed per audit. During the period 1994-95 to 1998-99, the proportion of audits directed at high and exceptional risk traders increased from 31 per cent to 38 per cent. This increase did not, however, reach the levels previously envisaged by the Department;
  • examine the scope to deploy a greater proportion of existing resources on direct audit work and ensure that trained assurance staff are not diverted to work not necessarily requiring their skill levels; and
  • continue to promote centralised booking of trader audits; ensure that local offices maintain adequate, accurate and up to date trader information; and investigate the scope for streamlining the trader reporting process.

"Customs and Excise deserve credit for deploying resources intelligently so that returns are increased. Their well-focused approach has yielded clear benefits but even more revenue could be brought in by directing greater effort at the highest risk traders".

Sir John Bourn

Notes for Editors

Value Added Tax (VAT) is a self assessed tax that is collected by 1.6 million registered traders who are required to keep adequate records to calculate their VAT liability correctly and to enable the Department to verify their VAT returns. This Report examines the Department’s changing approach to assuring VAT receipts from the vast majority of these traders. They account for 57 per cent of the VAT yield. The report does not examine arrangements for assuring receipts from around 1,800 large traders who, together, contributed £12 billion in 1998-99 and are subject to enhanced systems of control. We reported on these arrangements in our Report: "Checking Large Traders' VAT Liability" (HC368 1996-97) in March 1997.

Press notices and reports are available from the date of publication on the NAO website at 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 employing some 750 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.

PN: 67/99