Missing traders leave hole in VAT receipts

Spiralling missing trader fraud has led to the first year on year drop in VAT receipts since the tax was launched over 30 years ago, latest government figures show.

The fiddle, typically carried out around shipments of small high value items such as computer chips and mobile phones, could amount to £2bn a year, HM Customs and Revenue believes. But the Office of National Statistics (ONS), which produced yesterday’s figures, believes the missing sum could be much higher, The Guardian reports.

Full year VAT revenues in the 2004 fiscal year were £73bn, but slipped slightly to £72.9bn in the just finished year. In the first calendar quarter, receipts were £18.3bn. compared to £18.5bn the previous year.

The ONS has already warned that VAT fraud could be distorting its overall figures for the UK’s trade deficit.

The problem for the UK authorities is that some of its tactics to date have been condemned as heavy handed, hurting legitimate traders unfairly by freezing VAT refunds, while the fraudsters have long since cleared off with their ill-gotten gains. A number of cases brought by the revenue have collapsed, and cases that have reached the European courts have gone against the UK authorities.

In January, HMRC asked the European Commission to let it move to a “reverse charge” procedure for VAT on certain items, such as mobile phones, computer chips, and other high-value electronic items, to reduce the opportunity for fraudulent VAT claims.

Faced with dwindling VAT revenues, authorities can be expected to step up their efforts to crack down on fraud. At the same time, there are fears that figures showing the losses to government coffers are spurring copycat scams, as unscrupulous business types see the kind of profits they could make by ducking the VAT regime. ®