Wednesday, July 12, 2006

More On VAT Fraud

Round and round and round...

Late yesterday the National Audit Office published its report on HM Customs and Revenue's 2005-06 financial returns. There's a lot of interesting material that needs further study, but in the light of yesterday's blog on carousels, it's worth picking out a couple of the NAO' s charts.

The one above is a nice simple picture of the basic carousel fraud: their report shows more complex variants, and makes the point that the sophistication of these scams is increasing much faster than the tax authorities can react.

The following table sets out HMRC's estimates of losses: as we can see, despite all Gordo's promises, losses are again increasing.

This year it's even worse: although we won't get the official estimate until the Chancellor's Pre-Budget Report in December, we heard from the EU Tax Commissioner yesterday that the UK's losses are now running at a very scary £5bn pa.

The NAO also makes the point that some other European countries seem to have a better record- eg annual losses in the Netherlands are running at only £17m.

Nevertheless, this is a European problem. As mentioned yesterday, we've only got VAT at all because it's a condition of EU membership, and it's the EU that lays down the rules for its application. We're evidently to be given emergency powers to "reverse charge" (see yesterday's blog), but the chances of persuading our "partners" to adopt a more robust system are slim.

As per.

Update: Another fix on the extent of MTIC fraud is provided by the ONS monthly trade stats. The latest- also published yesterday- gives import and export figures including and excluding estimated MTIC trade. the trade is put at about £11bn, on both exports and imports, in 2005. But it seems to be getting much much bigger. This year the estimate for Q1 alone is £7bn, up from £1bn in Q1 2005. £7bn times 4 equals £28bn, which @ 17.5% implies a VAT loss of, yep, £5bn. But with the full import/export carousel, you need to double it, equals £10bn. No wonder we're getting emergency powers.

PS Ends and means, detection and punishment. The people who are running these scams are robbing us blind. They're also really really bad. Bright and calculating, they've not been driven to it by the need to steal a sheep to feed their starving children. They're doing it because they've identified a soft touch and are working to exploit it. But because they're so bright and ruthless, they're fiendishly difficult to track down. And if by some chance we do catch them in the brief periods they're not sitting on their yachts, the most they seem to get is five years nominal: divide by two, equals two and a half years at Ford Open Prison. If there was ever a case for really really harsh punishment, surely this is it.


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