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The National Audit Office today reported the results of their examination of HM Customs and Excise’s systems to ensure they provide an effective check on the assessment, collection and allocation of tax revenue during the year ending 31 March 2001. The report includes details of measures taken by HM Customs & Excise to combat fraud.

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The Government published details of its strategy for tackling indirect tax fraud in November 2001. Customs have built on their first strategy on Tobacco Smuggling (March 2000), by publishing estimates of the levels of fraud for other indirect taxes, concerning alcohol, oils and part of the VAT system, missing trader intra-Community fraud. This approach has six components: estimating the size of the problem; establishing the nature and economics of the fraud; responding to the fraud with the most effective means of tackling it; establishing outcomes; strengthening controls; and monitoring outcomes. Customs are currently working on their strategies for tackling fraud in all the remaining indirect taxes.

As a result of their new approach, Customs’ estimates to date suggest that a sum of between £6.4 billion and £7.3 billion (6.3 per cent to 7.1 per cent of the tax collected in 2000-01) has not been collected as a result of fraud. In addition the Department have not yet completed their assessment of fraud in VAT, which is Customs’ largest tax stream, representing 57 per cent of total receipts.

Tobacco duty

New scanner technology has come into operation and Customs have met their target for controlling fraud and smuggling for the first year of their strategy, 2000-2001. Sir John will review progress on the strategy when implementation is further forward. Customs can improve the way they tackle fraud by:

  • building on the success of their publicity campaign about tobacco smuggling by making more information available nationally and more regularly about progress towards the achievement of Customs’ targets for tobacco smuggling (this would reinforce their publicity campaigns);
  • building on their success in 2000-01 by making more effective use of their new scanner technology at ports, particularly by gathering good quality intelligence information to optimise performance; and
  • keeping under review the balance between prosecution and other measures in reducing overall smuggling.

VAT registration procedures

Customs can improve the way their VAT registration procedures identify potential fraud by:

  • making the planned improvements to their LORDS computer system for registering traders as soon as possible;
  • looking at whether legislative changes are needed to enable them to refuse applications to register where they have continuing concerns about an applicant and if so raise these at the European level; and
  • making more use of the intra-Community enquiry systems already available to identify suspect traders and co-operate more widely with European partners to benchmark performance, for example the number of applications refused.

" I welcome and support the steps that Customs have taken to estimate the amount of revenue being lost through fraud, and to develop and implement counter-fraud strategies. Fraud is a major problem both for Government and for citizens, and I will be reporting on how a number of Departments are responding to the challenge. "

Sir John Bourn


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