Revenue departments must make better use of data matching to catch people who are who are pocketing billions of pounds of value added tax (VAT), according the latest report from the House of Commons Public Accounts Committee.
"A staggering £11bn of VAT is being pocketed by fraudsters, cheats, as well as those making genuine errors, rather than being collected for the public purse," said Edward Leigh, who chairs the influential committee of MPs.
Last year Customs and Excise introduced stringent checks on VAT registration, and as a result 1.5 percent of applications were refused. But the report found that increasingly fraudsters have been stealing the registration numbers of legitimate traders.
Despite the huge loss to the government's coffers, Customs has no estimate of the how much of this is caused by genuine error and how much is lost through abuse and fraud.
The report, published on Thursday, found that Customs has been working successfully with other departments to detect traders who failed to register for VAT, but has made little use of data matching with records held by the Inland Revenue.
A recent review of UK revenue departments confirmed the scope for greater data sharing and recommended that the Treasury and the planned single Revenue Department – a merger of the Inland Revenue and Customs – should bring forward legislation to allow best use of data matching in the new department.
Exchanges of information with other EU countries is also recommended by the MPs. "Prompt exchange of accurate and up-to-date information on traders with other EU member states is particularly important in tackling fraud," says the report.
The European Commission has announced a feasibility study aimed at modernising the EU-wide VAT information exchange system and enabling more effective use of information on intra-community trade. The MPs believe Customs should work closely with the Commission in devising proposals for the new system.
