Audit of HM Customs and Excise systems and accounts 2003-04

"Customs’ UK Oils Strategy is an innovative and promising approach to tackling the illegal use of diesel and other fuels. The high degree of interdepartmental co-operation and improved intelligence gathering already achieved should provide substantial benefits, but Customs will need to ensure that issues such as IT support are further addressed.

"A significant decline in the VAT gap in 2003-04 indicates that Customs are on the right track with the VAT Compliance Strategy. Work is ongoing within the department to assess the effectiveness of individual elements of the Strategy to improve the targeting of resources and identify the best ways of further reducing the VAT gap."

Sir John Bourn, head of the National Audit Office, today reported the results of his examination of HM Customs and Excises systems for the assessment, collection and allocation of tax revenue during the year ending 31 March 2004. In 2003-04 Customs collected £162 billion (gross) in taxes and duties.

Sir John’s report focuses on Customs’ work to manage the risk of oils fraud and improve compliance in small and medium-sized enterprises. His examination also covered Customs’ financial accounts. The key findings are:

The UK Oils Strategy

Customs have developed an innovative approach in their fight against oils fraud. A scheme has been established that requires dealers in rebated oils to be registered. This scheme has provided Customs with access to much greater information to strengthen its intelligence and drive assurance and detection work. The Strategy has led to the development of effective cross-departmental working and information sharing with other organisations.

The Strategy has presented Customs with significant operational challenges in ensuring that proper support, particularly in the IT area, is provided to officers. Customs also need to work with the trade to encourage a greater take up of e-lodgement for monthly returns amongst the trader population using the Registered Dealers Scheme.

Many promising developments have been introduced under the Strategy which has resulted in an integrated approach across the department to tackle oils fraud. However, Customs are still working to devise a robust performance measurement system to allow the effectiveness of resources deployed to be assessed on a timely basis.

Improving compliance in small and medium-sized enterprises

Customs have implemented a new VAT Compliance Strategy. Within Regional Business Services, the risk analysis system has been restructured by introducing risk centres to all regions. This has led to a move towards a more flexible and varied risk assessment which is co-ordinated by a national risk management structure.

Performance measurement systems to evaluate the impact of these changes are still evolving. It remains too early to report formally on the effectiveness of the Strategy because of the difficulties in separating out the increase in revenues as a result of assurance and compliance activities, and those caused by other fiscal and economic factors. There are a number of promising and innovative developments which have strongly enhanced the approach to risk taken within Regional Business Services.

National Audit Office report: Audit of HM Customs and Excise systems and accounts 2003-04