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Sir John Bourn, head of the National Audit Office, today reported the results of his examination of HM Customs and Excise’s systems for the assessment, collection and allocation of tax revenue during the year ending 31 March 2003. In 2002-03 Customs collected £154 billion (gross) in taxes and duties.

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Sir John’s report focuses on Customs’ work to: address risks to revenue in the large business environment, and manage the risks of alcohol fraud. His examination also covered Customs’ financial accounts. The key findings are:

Addressing risks to revenue in the large business environment

The creation of the Large Business Group within Customs in April 2001 marked an innovative change in Customs’ handling of the 1,000 most significant payers of tax and duty in the UK, and the way in which it addresses risks to the assessment, collection and apportionment of revenues. The adoption of a ‘whole trader approach’ – the assessment of risk for the whole commercial structure across regions and tax regimes – and the provision of designated points of contact provide a sound foundation for future development. Early indications show a positive effect on compliance levels and increased revenue identification. But the key test will remain whether these changes will result in improved revenue yield, and how the impact of this new approach can be measured.

To ensure quality and consistency of assurance of large businesses, Customs should continue to draw upon good practice relating to risk assessment and planning to ensure that resources are targeted where they can have the greatest impact. In view of the significant changes made, it is important that performance measurement systems be refined to provide an effective means of assessing the impact of assurance work on revenue yield.

Managing the risks of alcohol fraud

Given the relative revenue risks, Customs work on managing the risk of alcohol fraud has been a lower priority than other departmental work tackling fraud risks within the oils and tobacco sectors. Though alcohol-related fraud is much lower than that related to tobacco, Customs estimate that over £650 million is lost each year. Within the constraints of existing resources and the current regulatory framework the department has, however, carried out effective work in preventing, detecting and investigating fraud against alcohol duty.

Customs have been bringing together their range of operational activities and proposals for changes in the regulatory framework in this area under a single longer term Alcohol Strategy, a key element of which is the potential introduction of tax stamps on spirits from early 2006. The strategy will provide Customs with a better framework to tackle alcohol fraud, but will require effective communication across the department to implement it successfully. In implementing the strategy Customs need to work to further enhance their methodologies for estimating the levels of wine and beer fraud, to simplify and improve the regulatory framework, and to manage and communicate better the role of the intelligence service within Customs.

"I am pleased to note the innovative changes made by Customs to better manage their relations with key stakeholders. The developments to date reveal a number of areas of good practice, for instance, closer co-operation with and understanding of traders, and the provision of dedicated points of contact for large businesses. The key test, though, remains the extent to which these measures will improve revenue yields.

"The development of a longer term strategy to manage the risks of alcohol fraud is also to be welcomed, although Customs will need to ensure effective cross-departmental communication if it is to be successfully implemented."

Commenting today on his audit, Sir John Bourn


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