Further supplementary letter from Rt Hon
Dawn Primarolo MP, Paymaster General, HM Treasury
Thank you for your letter of 9 March with some
further questions on Missing Trader Intra-Community (MTIC) fraud.
MUTATION INTO
OTHER SECTORS
The Committee has asked whether the fraud has
moved into other sectors. As you know, mobile telephones and computer
chips have long been the fraudsters' commodities of choice. However,
they have always used, and continue to use, a wide variety of
other goods, ranging from textiles to razor blades and golfing
equipment. HMRC has also seen evidence of some traders, historically
linked with trading in mobile phones, diversifying into goods
as disparate as pharmaceuticals and soft drinks, despite still
advertising their business activity as being linked to telecommunications
and electronic goods. However, the goods most commonly used in
the fraud after mobile telephones and computer chips are other
low-volume, high-value electronic goods, such as iPods and Satellite
Navigation systems, and we have taken action against this mutation
in the Budget.
EU FRAUD SUMMIT
The Committee also asked which law enforcement
and tax authorities were represented at the EU summit hosted by
HMRC on 21 February. All Member States except Bulgaria, Cyprus,
Finland and Luxembourg were represented, and most countries sent
one delegate from the tax administration and one from the main
law enforcement agency, often the police. In addition, representatives
from Eurojust, Europol, the EU Commission, OLAF, and Switzerland
attended the summit. The UK delegates were from HMRC and HMT,
the Scottish Crown Office, SOCA, RCPO and the Foreign Office.
COST OF
THE MTIC STRATEGY
The Committee has asked about the cost of the
staff that HMRC is currently using to tackle MTIC fraud. As I
have previously advised, in response to the unprecedented increase
in attempted fraud over the past year, HMRC has re-deployed around
700 extra staff to the MTIC strategy, bringing the number of enforcement
and compliance staff used on this work to over 1,500. This figure
does not include those staff who support the MTIC strategy, such
as prosecutors and financial liaison officers in embassies around
the world, or staff whose primary role is administrative, such
as VAT registration staff, those processing VAT returns and payments,
and debt management teams.
The full year costs for 2006-07 for 1,500 staff
are around £95 million, This includes paybill and general
overhead costs.
The 1,500 enforcement and compliance staff are
solely involved in protecting the tax base from attempted theft
by MTIC fraudsters. HMRC has estimated the scale of that attack
in 2005-06 as between £3.5 billion and £4.75 billion.
This compares to around 4,400 staff employed in assuring the remainder
of the £127 billion of VAT collected and £54 billion
of VAT paid out by HMRC each year.
Prior to the very rapid increase in attempted
fraud last year, the previous MTIC staffing levels had been sufficient
to keep the fraud under control. In responding to that increase,
HMRC has had to balance the need to act quickly to counter such
an attack, identifying, training and deploying staff with the
right skills and aptitude for this challenging work, whilst at
the same time, maintaining sufficient resources on enabling and
assuring other compliance activity within the wider tax system.
VERIFICATION OF
SUSPECT VAT REPAYMENT
CLAIMS
The Committee has asked how many traders are
currently subject to HMRC's verification strategy, in response
to an allegation that HMRC is applying a blanket approach to particular
sectors. I do not want to make public details of HMRC's operational
activity, but I can give some assurance that HMRC's strategy is
risk-based and is not focused on particular sectors. Last year
the level of VAT repayment claims from those suspected of trading
in supply chains associated with MTIC fraud rose very rapidly,
defying any economic or commercial logic. As a result, HMRC is
now verifying a greater proportion of VAT repayment claims from
such traders, regardless of which sector or goods they trade in.
These traders represent a tiny fraction of the 1.9 million VAT
registered businesses in the UK and, to date, the Courts have
been generally supportive of HMRC's policy and practice.
REVERSE CHARGE
Finally, the Committee asked for an update on
European negotiations on a "reverse charge" accounting
system for the goods most commonly used in MTIC fraud. As I have
already advised you separately, political agreement to the necessary
derogation was secured on 19 March, and the Government has announced
that the reverse charge will be introduced in the UK on 1 June
2007.
The Chancellor also announced in his Budget
two further measures to tackle the fraud. With effect from 1 May
2007, the provisions that allow HMRC to make one trader jointly
and severally liable for another's (fraudulent) tax debt will
be extended, to cover other electronic goods as well as telephones
and computer parts; and the Finance Bill will include a clause
allowing further changes to these provisions to be made by Treasury
Order. These measures will ensure that HMRC's operational strategy
is able to respond swiftly and flexibly to future mutations in
MTIC fraud.
I hope that the Committee will find this further
information helpful.
27 March 2007
|
