2 CUSTOMS' ACTION TO CLOSE
THE VAT GAP
9. Customs have developed a method for calculating
the total revenue losses due to VAT fraud. The estimate uses National
Accounts data on consumers' expenditure to identify the total
tax liability within the economy. From this, Customs subtract
the actual receipts collected to provide a 'VAT gap' estimate.
This estimate is then compared to data on the actual levels of
fraud identified by Customs in their assurance work, which is
subject to statistical analysis and extrapolation.
10. Customs have reported that they reduced the VAT
gap from 15.8% of theoretical tax liability in 2003 to 12.9% in
2004.[20] They estimate
that of the additional £5.5 billion of VAT collected in 2003-04,
£1.7 billion was due to the effect of their activities aimed
at closing the VAT gap. General non-compliance is one of the four
main categories used by Customs to classify VAT losses, the other
three being missing trader fraud, tax avoidance and failure to
register. Customs can assess and measure the effect of certain
of their activities in relation to general non-compliance on the
VAT gap, but not in all of them. Customs have a range of activities
within their work to tackle general non-compliance which they
believe improve the level of VAT compliance, but without a readily
measurable effect on the VAT gap.[21]
As a result, it is difficult to identify the effectiveness of
resources deployed in this area, and to determine whether resources
used could be more usefully deployed elsewhere to generate greater
benefit for the Exchequer.
11. Customs' Regional Business Services are responsible
for the collection of net VAT receipts from more than 1.8 million
small and medium enterprises.[22]
Regional Business Service comprises 7 regions which have been
set targets for collecting VAT receipts totalling over £38
billion in 2003-04 rising to over £42 billion in 2004-05
to contribute to the closure of the VAT gap (Figure 2).
12. Customs can measure performance against these
monetary targets and Regional Business Services as a whole exceeded
their target by more that £1 billion in 2003-04. As Figure 2
indicates, five of the seven regions, accounting for more than
95% of net receipts, met or exceeded their revenue targets.[23]
Figure 2: Net Regional Business Service receipts
by region[24]
13. Customs cannot currently isolate the individual
contributions made by each region to the closure of the VAT gap
overall, and do not know the scale of the VAT gap within individual
regions. The 'VAT gap' calculation is reliant on National Accounts
data, prepared to an internationally agreed standard, which are
not disaggregated by region. Any estimate of VAT fraud by region
would need to utilise alternative economic and consumption data
produced by the Office of National Statistics. If this were feasible,
Customs could identify which regions were most effective at reducing
the VAT gap and where the problem was greatest. They would then
be better placed to deploy resources to tackle fraud, and disseminate
best practice.[25]
14. Customs conduct credibility and validity checks
on individual trader payment records and return histories. But
they cannot compare automatically a trader's performance with
that of other traders within the same sector. Customs' overall
analysis of VAT risk includes trends within a sector, but the
standard analysis is not sophisticated enough to highlight individual
traders whose performance is unusual by reference to comparable
traders. Customs' National Business Picture will, in due course,
allow the Department to develop a more sophisticated analysis.[26]
Customs have not provided additional resources to build this capacity,
however, instead prioritising developments in other areas.
20 C&AG's Report, para 3.44 Back
21
Q 12 Back
22
C&AG's Report, paras 3.1, 3.7 Back
23
ibid, para 3.48 Back
24
C&AG's Report, Figure 3.9 Back
25
Qq 13, 85-86 Back
26
Qq 31, 36, 43-44 Back
|
