Annex D
HMRC ESTIMATES OF MTIC FRAUD
As I explained to the Committee, in the financial
year 1995-96, VAT receipts came in significantly below forecast,
and work began to investigate the reasons behind this shortfall.
The UK subsequently developed a strategic approach to tackling
indirect tax losses, including those arising from MTIC fraud.
The MTIC fraud strategy was launched in September 2000, and HMRC
has since published annual estimates of MTIC fraud levels alongside
the Pre-Budget Report. The earliest such data covers the financial
year 2000-01.
The estimates published alongside last year's
Pre-Budget Report were as follows:
Table 1
MTIC FRAUD ESTIMATES 2000-01 to 2004-05
|
| Financial Year | Lower estimate (£bn)
| Upper estimate (£bn)
|
|
| 2000-01 | 1.3
| 2.5 |
| 2001-02 | 1.7
| 2.5 |
| 2002-03 | 1.5
| 2.3 |
| 2003-04 | 1.1
| 1.7 |
| 2004-05 | 1.1
| 1.9 |
|
The methodology used to produce these estimates relied on
measuring a gap identified through official returns. However,
as fraudsters have changed the way they operate, this methodology
no longer provides a reliable estimate of MTIC fraud. The estimated
range for MTIC fraud in 2005-06, using this methodology, was between
£1.4 billion and £2.4 billion, but this estimation was
not supported by operational indicators. As a result, this measure
has been discontinued.
Instead, for 2005-06 HMRC produced an assessment of MTIC
fraud based on operational evidence and this was also published
alongside the Pre-Budget Report. The estimated scale of attempted
fraud during 2005-06 is between £3.5 billion and £4.75
billion. HMRC also estimated that in 2005-06 VAT receipts could
have been reduced by between £2 billion and £3 billion,
reflecting the fact that HMRC's operational strategy was able
to stop a significant proportion of the attempted frauds.
| 
