MPs Call For Tougher Stance On VAT Fraud

by Robin Pilgrim, LawAndTax-News.com, London

30 July 2004

The UK's Public Accounts Committee has urged the Customs and Excise Department to improve its investigation techniques and increase penalties for VAT cheats in order to recoup some of the £11.9 that is said to be lost annually in unpaid value added tax.

Speaking following the release of the PAC report, Committee chairman, Edward Leigh called the losses "staggering", and argued that:

"Traders paying over the correct VAT and the taxpayer in general, will want to see Customs step up its efforts to tackle these losses."

Conclusions drawn by the cross party panel were that:

• Customs’ work to measure the losses from fraud and error on VAT is an important first step in determining the size and nature of the problem, as well as providing a benchmark for judging progress;
• Customs needs better information to determine the most effective response to non-compliance by traders;
• Better use of data matching with the Inland Revenue is needed to detect traders who are evading VAT by operating in the shadow economy;
• Prompt exchange of accurate and up-to-date information on traders with other member states is particularly important in tackling missing trader fraud;
• The scale of VAT losses suggests that more investigations and prosecutions for all types of VAT fraud would be cost effective;
• To achieve the maximum effect from prosecutions for VAT fraud, court time should be made available promptly so that cases are brought to trial more quickly;
• To maintain public confidence in the standard of investigations, Customs’ training needs to match standards of good practice applied in the wider profession.

The report also took issue with the fact that despite the thousands of under-declarations of VAT discovered each year, Customs & Excise has only reported the accountant or other professionals involved to their professional body on four occasions.

The government has set Customs, which is soon to merge with the Inland Revenue, a target to stop the growth in the VAT gap and to cut it from 15.7% of the total VAT that could theoretically have been collected in 2002–03 to 12% by 2005–06.

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