VAT Evasion At Highest Level Since Start Of Crisis

VAT Evasion At Highest Level Since Start Of Crisis

Tax fraud has reached its highest level since the start of the financial crisis, a new study suggests.

VAT evasion now accounts for 44% of all fraud and is costing Britain more than £3bn a year - the equivalent to a 1p reduction of the effective rate of tax for every UK taxpayer.

And according to a report by accountancy firm BDO , the problem is largely down to a significantly under-resourced HM Revenue and Customs.

Its author, Simon Bevan, said half of the fraud is being committed by professional fraudsters, while the rest is down to deliberate evasion or mistakes by legitimate traders.

He said: "Politicians and the public at large are presently pointing their finger at various multinationals for allegedly not paying the correct amount of corporation tax.

"However, our latest survey of UK fraud shows that, in reality, it is the fraud element of UK's VAT gap - the theoretical difference between what the Government expects to collect in sales tax and what it actually collects - that is the bigger drain on the public purse."

He said the Germans and the Dutch have thrown resources at the issue and now suffer proportionally much less professional VAT fraud than other EU countries.

"If we focus on serious VAT fraud - and resource HMRC accordingly - we can immeasurably improve the public purse in a relatively cost effective manner," he added.

The findings come as separate data from law firm Pinsent Masons shows the number of times HMRC requested help from overseas governments for information on the tax affairs of suspect tax dodgers fell last year by 40%.

The taxman made 640 requests in 2011-12, compared to 857 in 2010-11.

Phil Berwick, a partner at the firm, said it may have "picked off most of the low hanging fruit", and its recent tough, targeted approach may have prompted some individuals "onto the straight and narrow" to come forward voluntarily.

"It may also be the case that HMRC's heavy workload is catching up with it," he continued.

"The recent NAO report on HMRC's compliance performance revealed that HMRC had 41,000 open avoidance investigations.

"HMRC has pushed very hard on compliance recently and may be hitting capacity," he added.

A HMRC spokesman said: "We do not believe that there has been an increase in VAT fraud. HMRC's latest estimate of the VAT Gap shows a decrease from 10.1% in 2010/11 to 9.7% in 2011/12.

"HMRC is investing in a highly-skilled workforce to combat evasion. We will increase the number of staff working on compliance by around 2,500 people by 2014/15 with an additional 200 criminal investigators and 40 intelligence officers.

"If people continue to refuse to comply, we will find them and penalise them heavily."