Tax fraud shown to be at its highest level since 2007
Tax fraud has doubled in the last two years, with carousel and missing trader fraud believed to be responsible for about one-third of lost VAT.
New research from accountants at BDO LLP shows tax fraud is at its highest level since 2007 and accounts for 44% of all UK fraud. Reported fraud totalled £603m in 2012, compared with £274m in 2009 and £309m in 2010 (however, the vast majority of fraud is not reported).
Simon Bevan, author of the BDO FraudTrack report, which looks at reported fraud above £50,000, said the research shows fraud, rather than alleged tax avoidance by multinationals, is “the bigger drain on the public purse”.
Carousel and missing trader scams represent a “vast proportion” of the third of the UK’s £10bn VAT gap that is believed to be due to fraud. That is the equivalent of at least one pence off the effective rate of tax for every UK taxpayer.
According to the report, about half of this £3.3bn of fraud is committed by legitimate traders and half by professional fraudsters. It advises prevention measures such as increased checks on new registrations, greater information sharing between EU members, and the implementation of the reverse charge mechanism on more goods. Only £561m of VAT fraud was prosecuted last year in the UK.
Bevan said: “That VAT fraud accounts for such a high proportion of overall fraud is a function of a significantly under-resourced HMRC.
“Anecdotally, we are hearing that missing trader and carousel fraud is proving difficult and time-consuming to prosecute and is not now a main focus of CPS policy—we think this is a false saving. In recent years, both the Germans and the Dutch have allocated resources to this issue and now suffer proportionally much less professional VAT fraud than other member states.”
Missing trader fraud is where a seller charges sales tax and then disappears or goes into administration before paying its VAT liabilities. Carousel fraud sees goods bought without sales tax being paid and then sold round a carousel of companies in the EU before being exported to the original seller, at which point a VAT refund is falsely claimed from HMRC.
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