VAT mistakes 'costing billions'

Measures are being taken to tackle the VAT gap, the government says

Fraud and error in VAT cost the British taxpayer around £11.9bn last year, said the National Audit Office (NAO).

The figure was up 12% from £10.6bn losses the previous year.

The NAO said Customs had identified more than £3bn of extra VAT payable in 2002/3 that registered traders had underpaid deliberately or in error.

Customs and Excise have been set a target to reduce the VAT gap from 15.7% in 2002/3 to 12% of potential revenue expected in 2005/6.

Preventing fraud?

Measures to crack down on losses have included a scheme between April to September last year to encourage businesses out of the "shadow economy".

There was also a bid to improve advice to help businesses to comply.

Head of the NAO, Sir John Bourn, said new measures were being utilised to find and prevent fraud and to improve compliance by traders.

There had been "some progress" on missing trader fraud where VAT-free goods are purchased, sold in the UK with prices that include VAT and then the traders disappear without handing the VAT over.

Sir John said losses from such activity had fallen from between £1.77bn and £2.75bn in 2001-2 to between £1.65bn and £2.64bn in 2002/3.

'More to be done'

He added: "Success will ultimately turn upon whether this can secure a sustained reduction in the level of losses."

Treasury Minister John Healey said the VAT "gap" had worsened in the UK in part because of organised tax fraud and also because of the professional tax avoidance industry.

But he claimed the government was now seeing results because of its decision to combat the losses.

He said VAT receipts were ahead of forecasts and losses from the most serious VAT fraud had reduced rapidly in the present financial year.

But he added: "There is still a lot more to be done."