APPROPRIATION ACCOUNTS 1996-97 CLASS XVI, VOTE 3: HM
CUSTOMS AND EXCISE
VAT RECEIPTS
18. In 1996-97, the Department net receipts of VAT
were £1.2 billion less than forecast. The Department's accuracy
target for net VAT is plus or minus three per cent of forecast,[35]
giving a range of plus or minus £1.44 billion for that year.
The Department informed the Committee that the situation had improved
in 1997-98, with a shortfall of £78 million against the November
1996 forecast, or an error rate of 0.2 per cent. The Department
informed the Committee that the forecast accuracy target remained
at plus or minus three per cent for 1998-99, but undertook to
review the target, with a view to tightening it.[36]
19. The Department noted that during the previous
ten years they would not have met the target for 50 per cent
of the time. A £6 billion gap between forecast and actual
receipts, in 1995-96, had led the Department and the Treasury
to carry out a joint review into the reasons for the poor forecasting
record, the final results of which were published as a Treasury
Occasional Paper in September 1997. The review identified possible
causes for some £3.4 billion of the £6 billion shortfall.[37]
20. The Department said that there were inherent
difficulties with forecasting, but that they were seeking to improve
their understanding, particularly of large payers' businesses,
as they implemented the recommendations arising from the joint
review. The Department also informed the Committee that VAT returns
were simple documents, which did not contain the type of information
the Department needed to support more accurate forecasting models.
The Department was concerned that requests for additional information
might impose unacceptable burdens on businesses. Nevertheless
they would consider whether they should seek this additional detail.[38]
21. One of the causes of the gap between forecast
and actual receipts identified by the joint review was a £2
billion shortfall due to tax planning and tax avoidance.[39]
The Department agreed that tax planning, so that a trader did
not pay more tax than they should, was acceptable, but said that
it could be difficult to distinguish between tax planning and
tax avoidance. The Department had appointed additional anti-avoidance
officers and given them additional training to aid them in identifying
anti-avoidance schemes. The Department had also employed some
private sector accountants to obtain their views on tax planning
in operation.[40] The
Department subsequently informed the Committee that the target
for the revenue they wished to protect through anti-avoidance
work was £75 million to £100 million, in 1997-98, and
£100 million to £125 million in 1998-99. They had met
in full the target for 1997-98.[41]
22. We also considered the Department's progress
on VAT debt management. Traders registered for VAT are required
to assess their own liability and submit returns, together with
any payment due, within one month of the end of each accounting
period. Where returns are not submitted, or are inaccurate, the
Department issue assessments that establish the trader's liability.
When the VAT liabilities become overdue, recovery is managed through
the Large Payers Unit for traders with annual payments in excess
of £300,000 and through local debt management units for all
other traders. The total debt at 31 March 1997 was approximately
£1.3 billion, of which £481 million was more than six
months old. During 1996-97, £516 million was written off.[42]
The Department's target for average month end arrears, as a percentage
of annual liability in 1996-97, was 2.3 per cent; and they achieved
2.2 per cent.[43]
23. The Department confirmed that they pursued all
debt rigorously, and noted that the reported amounts of outstanding
debt included sums that were subject to civil recovery procedures
or were subject to appeal, and sums due from traders under investigation.[44]
Of the £516 million written off in the Department's ledgers,
in 1996-97, £466 million related to insolvent traders.[45]
The Department informed us that, by pursuing the debt with insolvency
practitioners, they continued to seek to recovery of the debt
after write-off action had been taken. For example, in 1996, the
Department had recovered £37 million after write off.[46]
24. The Department said that they took steps to try
to keep traders in business by allowing them time to pay their
debts and recognised that all traders might have cash flow problems
from time to time. They stated that the usual time they allowed
traders to pay was three months, because VAT returns are due quarterly
and difficulties in collecting payments increased if the time
to pay for one quarter extended into the following period.[47]
25. The Department's target for prompt payment by
large traders was 95 per cent.[48]
The Department argued that it was unrealistic to expect all traders
to pay on time because of factors outside their control such as
postal or banking delays. The Department noted that achievement
against target had improved, rising from 94.1 per cent in 1996-97
to 96.23 per cent in 1997-98.[49]
Conclusions
26. In the light of the 1997-98 results and the recommendations
on forecasting made by the joint departmental/Treasury review,
the Department are committed to review their VAT forecast accuracy
target. We believe that the Department should set an accuracy
target no broader than the one per cent target set for non-VAT
taxes and duties.
27. The Department have been giving increased attention
to tax avoidance, both through staff training and through the
use of private sector expertise on tax planning. While traders
have a legitimate concern not to pay more than they should, we
would encourage the Department to redouble its efforts against
all artificial attempts to minimise tax liability.
35
C&AG's Report, Appropriation Accounts, 1996-97, Volume 16,
paragraph 8 Back
36 Q9 Back
37 C&AG's
Report, Appropriation Accounts, 1996-97, Volume 16, paragraphs
36, 37 Back
38 Q116 Back
39 C&AG's
Report, Appropriation Accounts, 1996-97, Volume 16, paragraph
37 Back
40 Qs
117-119 Back
41 Q120
and Appendix 1 to Evidence, Appendix 1, p17 (PAC/297) Back
42 C&AG's
Report, Appropriation Accounts, 1996-97, Volume 16, paragraphs
42, 44, 45, Figures 13 (revised), 14 Back
43 C&AG's
Report, Appropriation Accounts, 1996-97, Volume 16, paragraph
43 Back
44 Q10 Back
45 C&AG's
Report, Appropriation Accounts, 1996-97, Volume 16, paragraph
49, Figure 14 Back
46 Qs
13-14 Back
47 Qs
69-72 Back
48 C&AG's
Report, Appropriation Accounts, 1996-97, Volume 16, paragraph
44 Back
49 Q11 Back
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