NAO Report Highlights Black Hole In VAT Revenues

by Robert Lee, Tax-News.com, London

04 March 2004

The UK government lost nearly £12 billion in VAT receipts due to fraud and errors, a report released on Wednesday revealed.

The report, compiled by the government’s spending watchdog, the National Audit Office (NAO), found that based on estimates by Customs & Excise, VAT losses in the period 2002/03 were £11.9 billion, representing an increase from the 2001/02 estimate of £10.6 billion.

The NAO report also observed that Customs has failed to break down the figures into losses which are due to fraud, and those which are due to error.

However, the report noted that the amount of revenue lost due to ‘missing trader’ fraud had dropped from between £1.77 billion and £2.75 billion in 2001/02, to between £1.65 billion and £2.64 billion in 2002/03.

The government has tasked Customs with closing the gap between the amount that should be collected based on economic activity, and the amount that it actually does collect, which in 2002/2003 stood at 15.7% of total revenues. The department has been set a target of reducing this gap to 12% by 2005/2006.

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