Tax fraud soars to hit five-year high at £600m

Michael Bow
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THE level of reported tax fraud rose to its highest level since 2007 last year – despite a plunge in total frauds recorded, a study out today shows.

Tax fraud accounted for almost half of all fraud reported to authorities in 2012 – some 44 per cent – and is almost double the figure reported in both 2009 and 2010. VAT fraud accounted for the majority of the figure, pegged at 41 per cent of all frauds committed in the UK.

Accountancy firm BDO said the government was losing around £10bn a year due a gap between what the government expected to collect in VAT and what it actually collects, with a third of this loss due to fraud.

“Politicians and the public at large are presently pointing their finger at various multinationals for allegedly not paying the correct amount of corporation tax,” Simon Bevan, who authored the report, said.

“However, our latest survey of UK fraud shows that, in reality, it is the fraud element of UK’s VAT gap that is the bigger drain on the public purse.”

The firm’s FraudTrack report, published today, shows total fraud fell in 2012 from £2.1bn to £1.4bn.

However tax fraud only declined slightly to £603m, roughly double the £274m reported in 2009 and £309m in 2010, though much is unreported.

BDO estimates that VAT fraud actually costs the UK’s public purse around £3.3bn last year, equivalent to about 1p for every tax payer and enough to pay for the winter fuel allowance, free TV licences and with enough left over to build 17 hospitals.

Around half of VAT fraud, around £56m, is due to general non-compliance. The other half is due to so called “carousel fraud”, which lets traders claim a VAT refund illegitimately, and missing trader fraud, where companies dissolve without paying their VAT liabilities.

Bevan called on HMRC to better resource the fight against tax fraud.

“If we focus on serious VAT fraud – and resource HMRC accordingly - we can immeasurably improve the public purse in a relatively cost effective manner,” he said.