VAT fraud 'reaches record levels'

Fraudsters pocket the VAT they have added to imported goods

VAT fraud in the UK has reached record levels, HM Revenue and Customs statistics show.

Criminal activity accounted for £7.4bn in UK trade in the last quarter alone.

Officials say that fraudsters import goods from Europe tax-free, sell them with VAT, then disappear without passing the tax on to the government.

An investigation by BBC's Panorama programme found that in some cases goods are imported and exported again and again.

Justin Rowlatt, investigating the problem for the Panorama programme to be screened this Sunday, said the most profitable form of VAT crime was "carousel fraud".

It means the same goods, usually mobile phones or computer chips, are repeatedly imported and exported.

Every time the goods leave the UK, the exporter claims back VAT from the government.

Revenue and Customs said criminal gangs that run VAT fraud constantly changed the way they operated and that it was therefore adapting its techniques to tackle the problem.

'Additional staff'

A spokesman for the Treasury said they knew there had been an increase in this type of fraud for some time.

HMRC were continuing to "intensively verify repayment claims that they suspected were connected with this type of VAT fraud".

He said an additional 420 staff - more than doubled previous levels - had been redeployed to carry out these checks.

But shadow chancellor George Osborne said it was more evidence Chancellor Gordon Brown "had taken his eye off the ball".

"He's too busy clearing his desk to focus on running the tax system effectively. This week alone, we've learned that billions of pounds worth of tax credits have been defrauded from right under his nose. And now, we discover that VAT fraud has climbed to record levels," he said.

Panorama - Do You Want to be a Millionaire? will be screened on BBC1 on Sunday at 10.15pm.