Treasury rejects VAT fraud figures

The Treasury has rejected a new report suggesting more than £8 billion in VAT was stolen by fraudsters last year.

Officials said they “do not recognise the figures” put forward by a Belgian taskforce, which suggest VAT fraud rate in the UK is five times higher than any other EU country.

According to BBC’s Panorama programme, £8.4 billion was lost to VAT fraudsters between June 2005 and June 2006.

This is far more than the government’s own figures, which estimate losses of up to £1.9 billion for the year to April 2005. The latest figures are not due until Gordon Brown’s pre-Budget report this autumn.

The Belgian report claims that three-quarters of the VAT lost is through “carousel fraud”, or missing trader intra-community fraud (MTIC).

This is when criminals import goods such as mobile phones and MP3 players, pocket the 17.5 per cent VAT that should be given to the Treasury, and then claim it back when they export the goods to a non-EU country such as Dubai. They then repeat the process.

Today a Treasury spokesman admitted carousel fraud was a problem across the EU and said more than 1,400 staff were deployed specifically to tackle this type of crime.

“Recent operational data and trade figures show a significant reduction in the level of trading associated with MTIC fraud, and we are confident that this trend will continue, assisted by the forthcoming introduction of the reverse charge,” he said.

But he stressed: “We cannot comment on the substance of this [Belgian] report and we do not recognise the figures that are set out for the UK.”

A new tax system is due to be introduced in December which would mean that for certain electrical goods, including mobiles and games consoles, only the final retailer would be able to charge VAT.

John McFall MP, the Labour chairman of the Treasury select committee, this morning said such a “reverse charge” scheme – which is subject to final approval by the EU Commission – could have a huge impact.

“If it was implemented it would remove the mechanism for stealing VAT from about 95 per cent of the goods traded in carousel frauds,” he told Today.

However, shadow paymaster general Mark Francois said: “The Treasury produced a detailed report on this problem as far back as 2001 and yet all the serious commentators now agree that, five years on, the problem is growing steadily worse.

“Why has chancellor Gordon Brown been asleep on the bridge all this time while billions of pounds have been stolen from the British taxpayer?”