Examination of Witnesses (Questions 160
- 171)
WEDNESDAY 2 FEBRUARY 2005
HM CUSTOMS &
EXCISE
Q160 Mr Davidson: Which is seven
months and, with time off for good behaviour, six months. What
was the scale of people engaged in these activities which led
them to these successes?
Mr Gray: I cannot give you a precise
figure.
Q161 Mr Davidson: I am trying to
clarify whether or not it is taken sufficiently seriously.
Mr Gray: The average length of
sentence has gone up a little over recent years. For 2002-03 the
average was 11 to 12 months so it went to 15.
Q162 Mr Davidson: That does not help
me if the offences are now are much bigger. Turning to VAT fraud,
in terms of other European countries, do you have any indication
of the level of VAT fraud there and how that compares with the
UK?
Mr Gray: Not in terms of the analysis
that we have developed of estimating a VAT gap. It is of interest
that in an international meeting of heads of tax authorities which
included two other European Union countries there was quite a
lot of interest from them in relation to VAT as in oils about
the methodology that we are adopting.
Q163 Mr Davidson: I would imagine
tax authorities would be interested. What I am not clear about
is (a) the scale and (b) whether or not governments in the other
European Union countries are putting the same push behind this
as we are. Clearly, if you do not pay your tax it affects the
share of the contribution made to the EU budget overall. Therefore,
we end up paying more than our due share because we are more compliant
on VAT. I wonder if the NAO have anything on this? If not, could
we have something?
Mr Suffield: We do not have any
figures but we can certainly look into that.[10]
Mr Varney: Confiscation orders
for 2001-04 were about 1.2 million. You asked how much money had
we seized.
Q164 Mr Davidson: What do I compare
that to?
Mr Varney: In terms of the fraud
assessment detected, we have a figure of £11.5 million so,
if you take recent years, seven convictions, 14 months' jail sentence
and confiscation orders so far this year running at about £170,000.
Q165 Mr Davidson: £170,000 is
not a lot, is it? Could we have some sort of paper on that because
that is something we might want to take up. In terms of the scale
of fraud, you are telling us that £2 billion is roughly the
VAT gap, which means that one in eight pounds of VAT is being
lost through fraud, which is an incredibly high figure. You look
puzzled. I base it on 12.9%. When I look at all the attention
that is paid to fraud in terms of welfare benefits and the like,
none of those figures is anything like as high as this. The business
community must be full of thieves and villains if one in eight
pounds of VAT is being lost.
Mr Eland: That two billion is
not solely related to fraud. It is the loss between the amount
that is calculated should be paid and the amount we receive. It
can occur for a variety of reasons, including error.[11]
Q166 Mr Davidson: Error you would
normally expect to balance itself out. Therefore, there would
be a nil factor. This is like dealing with farmers. If you find
the errors are always in the same direction, you would think this
is perhaps not error but deliberate. One in eight seems to me
to be an astonishingly high figure. This indicates widespread
dishonesty or incompetence amongst British business, does it not?
Mr Eland: A very significant part
of it is what is called missing trader fraud, which is criminal
attacks on the system from outside rather than fraud by businesses
inside the system. There is also avoidance which is legal. It
is not a straightforward defrauding figure.
Q167 Mr Davidson: If it is avoidance,
how can it be part of the VAT gap, if it is legal for them to
avoid it?
Mr Eland: It is avoidance that
we are challenging.
Q168 Mr Davidson: Maybe it is not
legal then?
Mr Eland: It is whether their
interpretation of the law is correct.
Q169 Mr Davidson: If their interpretation
of the law is correct, it will reduce the gap by definition.
Mr Eland: It would go into the
top bit of the equation, yes.
Q170 Mr Bacon: Mr Burr, can you confirm
that the reason the National Audit Office qualified the accounts
of Customs and Excise is because there were payments made to the
police in support of ongoing criminal investigations which Customs
and Excise had no authority to make?
Mr Burr: Yes. The payment was
outside the scope of the vote.
Q171 Mr Bacon: Mr Eland, you said
you were unaware of the fact that these payments were ongoing
when Sir Richard Broadbent handed over the chairmanship to you.
He obviously did not tell you and kept you out of the loop. When
you handed on the chairmanship to Mr Varney, were there any things
that you feel in retrospect you might have told him that you did
not and, if so, would you like to tell him now?
Mr Eland: I hope I have properly
briefed him on all relevant matters.
Chairman: Thank you very much for what
has been a very interesting session.
10 Ev 17 Back
11
Note by witness: The VAT Gap is calculated in percentage
terms. The 12.9% referred to in Q165 is the size of the gap reported
for 2003-04. In monetary terms this equates to a difference of
approximately £10.2 billion between actual VAT receipts and
that which is theoretically due. Back
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