4 Collecting the right revenue from
traders
13. Over recent years Customs have developed
a risk management approach to the collection of revenue. They
have drawn up annual business assurance models to target traders
who present the highest risk. The models have used several factors
to assess risk, such as the complexity of a trader's business,
the results of previous visits by Customs' officers and the trader's
payment history. Traders have been placed in specific risk groups
and staff at regional offices use their detailed local knowledge
to select individual traders for examination within each group.
Rather than visiting the trader in every case to check that they
are paying the correct amount of tax, Customs' staff may gain
assurance in other ways, such as by telephone, to aid efficiency
and reduce the burden on the trader.[13]
14. When conducting assurance visits Customs
have relied on a number of techniques. For traders who routinely
provide customers with VAT receipts, Customs' staff have made
an assessment of the tax liability by comparing the trader's VAT
return for the month with till rolls and other records. Where
the trader has rarely given receipts to customers, such as take-away
restaurants, Customs have applied other approaches, such as observing
the trade conducted by the restaurant over a period as the basis
of an assessment of the VAT liability. After producing one or
two estimates in this way, Customs have been able to approach
other take-away restaurants in the area with assessments of their
VAT liability.[14]
15. During 2001-02 Customs identified underpayments
of £2.5 billion in VAT and Excise through their assurance
work, an increase of 5% on the previous year. Nevertheless, one
half of all VAT registered traders in the UK, some 750,000, have
not been visited by Customs' staff in the last ten years, and
of these traders approximately 500,000 have never had their VAT
position assessed in detail. And despite Customs' concentration
on high risk traders, they carried out 22% fewer VAT visits to
such traders than planned for the year. Similarly, only 77 of
all planned Excise visits took place.[15]
16. Customs recognised that in visiting more
of the difficult, non compliant, companies they had carried out
fewer visits overall, and that they had not been making enough
routine contact with traders to give them guidance. Following
their internal reorganisation, and the adoption of a VAT strategy,
the number of unvisited traders has already started to fall.
Customs believed that by March 2005 the number unvisited would
be approaching zero.[16]
- Customs' VAT compliance strategy, published in
November 2002, is aimed at tackling fraud across all parts of
the VAT system, and aims to achieve overall outcomes rather than
focussing on individual outputs. At the same time as producing
their strategy the Department published estimates of the possible
extent of fraud and evasion across VAT and the other taxes and
duties. Customs estimated that in 2001-02 the amount of VAT not
paid through error, evasion or avoidance was between £7.1
billion and £10.2 billion, with a further £7.1 billion
unpaid in taxes and duties payable on alcohol, tobacco and hydrocarbon
oils due to error, evasion or legitimate cross-border shopping.
Customs have identified two major sorts of VAT fraud: large organised
fraud which they believed was in the order of £2 billion;
and smaller fraud which was more difficult to distinguish from
simple error, negligence and suppression. The Treasury have provided
Customs with funds for 900 extra staff to address the issues
raised in their Strategy, and expect them to recover £1.4
billion extra VAT by 2005-06 as a result. Customs' own internal
target is £2 billion.[17]
13 C&AG's Report, paras 3.5-3.8 Back
14
Qq 43-45 Back
15
C&AG's Report, paras 3.2, 3.10-3.11, 3.21 Back
16
Qq 33, 131 Back
17
C&AG's Report, para 1.9; Qq 50, 87, 157-158 Back
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