HM CUSTOMS AND EXCISE: CHECKING LARGE-TRADERS'
VAT LIABILITY
THE IDENTIFICATION
OF RISKS
AND THE
ALLOCATION OF
RESOURCES
15. The C&AG's Report noted that there were
2,400 traders with a tax throughput of more than £10 million
who were not allocated large-trader status by local offices, and
that the Department had undertaken to review the status of all
traders with annual tax throughputs in excess of £7 million,
who were not currently classified as large, to determine whether
any of these traders required enhanced audit as large-traders.[11]
16. In evidence, the Department confirmed that they
had completed the review recommended by the National Audit Office,
and, as a result, had designated a further 272 large-traders.
The outcome of the review would inform their resource allocation
for 1998-99. They expected that the designation of these additional
large-traders would lead to additional annual tax revenue of between
£5 million and £15 million. The Department added that
they had implemented arrangements for the regular review of traders'
status and that they would pursue this in judging local offices'
performance.[12]
17. The Department's review of large-traders had
been conducted using criteria issued in 1993 but had since been
reviewed, at the National Audit Office's suggestion. Local staff
had found the existing criteria to be inadequate, and some officers
had used their judgement to give more weight to certain factors
or to use additional factors to reflect perceived risks. As a
result, the Department had issued revised criteria, for trial
at local offices. Early indications were that these revised criteria
were better than those used previously, though the Department
said that there would always be a need for officers to exercise
judgement in their application.[13]
18. The C&AG's Report noted that there were sometimes
quite wide differences between local offices in the level of audit
effort devoted to traders assessed as presenting similar risks
to the revenue.[14] When
asked whether this meant that some traders were being under audited
and that revenue was being lost as a consequence, the Department
said that they did not think so and that the imbalance was due
to a variety of factors:
- the use by some offices of additional criteria
led to differing allocations of resources by them;
- some local offices, for example North West Collection,
also operated sector co-ordination units or centres of professional
expertise which undertook work for the whole country, and time
spent on these activities had not been separated from work on
individual traders;
- abnormal staff movements resulting from the reorganisation
of regional offices; and
- time spent dealing with large VAT Tribunal cases.[15]
19. The Department accepted, however, that,
while there would always be some differences in resource allocations,
wide disparities between regions were undesirable. It was important
that local offices now assessed their traders against the new
criteria, and the Department's headquarters division would then
investigate any obvious differences in resource allocations. By
1999-2000 they hoped to have developed an overall factor for allocating
resources between regions. The Department added that, following
the implementation of the revised system, they would continue
to monitor closely for resource discrepancies.[16]
20. The Committee asked why there was such a wide
variation in the level of resources used to audit large-trader
local authorities, when they might be thought to be quite similar
organisations throughout the country. The Department replied that
local authorities varied enormously in nature, and that tax throughput
alone might not be a reliable guide to the audit effort required.
While some authorities had straightforward activities, factors
such as the proportion of non-business work undertaken, and the
level of VAT repayments made, also contributed to the complexity
of others. The Department had since set up a centre of expertise
for all local authorities together with a network of liaison officers.
They had also established a national database of local authorities
with large-trader status.[17]
Conclusions
21. The Department's review of traders with
tax throughputs exceeding £7 million a year is estimated
to result in an additional annual revenue gain of between £5
million and £15 million. In view of the potential revenue
at stake in such cases, the Committee expects the Department to
ensure that local offices review the composition of their large-trader
populations annually.
22. To improve Departmental performance, local offices
have been issued with revised criteria for the identification
of traders requiring enhanced control arrangements. To ensure
the early and continuing benefit from the use of such criteria,
we look to the Department to implement the revisions rapidly,
and to review the revised criteria regularly in order to ensure
that they remain appropriate to the needs of the revenue.
23. We expect to see the early removal of the previous,
wide variations in resource use between different local offices,
following the Department's review of methods used to relate resource
deployment to risk.
11 C&AG's
Report (HC 368 of Session 1996-97), Figure 8 and paragraph 2.20 Back
12
Qs 3, 15-16, 19 Back
13
Qs 4, 51, 53 Back
14
C&AG's Report (HC 368 of Session 1996-97), paragraph 2.26
and Figures 9-11 Back
15
Qs 5, 14, 78 Back
16
Qs 6, 78, 92-93 Back
17
Qs 33-34 Back
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