VAT fraud crackdown urged by MPs

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

Tougher penalties should be imposed on VAT cheats who, along with errors, cost the Treasury nearly £12bn in lost tax a year, an MPs' committee has said.

The Commons public accounts committee says the amount lost through fraud and error is "staggering".

The scale of loss makes more VAT fraud prosecutions and investigations cost effective, the report said.

A Customs spokesman said new ways of tackling fraud were paying off with VAT receipts ahead of forecast last year.

According to Customs figures, fraud and error in VAT cost the British taxpayer around £11.9bn in 2002-3.

This was up 12% from £10.6bn in losses the previous year.

Essentially we want a bigger effort from them (Customs) to actually track the money down Richard Allan Lib Dem committee member

Committee chairman Tory MP Edward Leigh said: "Traders paying over the correct VAT, and the taxpayer in general, will want to see Customs step up its efforts to tackle these losses.

"In particular, I urge Customs to consider tougher penalties for evasion and under-declaring VAT, as a greater deterrent.

At the moment, Customs prosecutes around 90 cases a year and the number of investigations producing civil penalties has fallen to around 270 cases, the report said.

But where Customs found traders had not declared the correct amount of VAT but did not investigate, it could only impose a maximum penalty of 15% of the unpaid tax.

Liberal Democrat committee member Richard Allan said the losses were equivalent to an extra 4p in the pound on income tax.

Strategy

He added: "If we are having debates about how we can get more money into public services, about how we can do that without putting up taxes, we can start by collecting the tax that is already due."

"Essentially we want a bigger effort from them (Customs) to actually track the money down," he told BBC Radio 4's Today Programme.

A Customs spokesman said a comprehensive £45m strategy to tackle fraud was unveiled in the 2003 budget.

There are already signs that this is starting to pay off, he said.

VAT receipts were £2.5bn ahead of forecast in 2003-4, with £1bn of that coming from measures to tackle orchestrated fraud, he added.

"The government is determined to tackle the minority who abuse the tax system and rob our public services at the expense of the majority of honest taxpayers who pay their fair share," the spokesman said.

Other recommendations:

New arrangements to speed up complex fraud trials should be agreed with the Department for Constitutional Affairs

Court time should made available promptly so cases are brought to trial more quickly - it can currently take up to a year for complex cases

More accountants, lawyers and tax advisers involved in the under-declaration of VAT should be reported to their professional bodies

A timetable for the training of investigators should be drawn up