The UK’s VAT gap has widened by £3billion in just over 12 months, rising to a
total of almost £13bn from £10.3bn in the year ending April 2013, official figures show.
The gap, the difference between the Value Added Tax collected and that which should be collected, is made up of losses from avoidance, debt, evasion and organised crime.
In terms of the latter, so-called MITC fraud led to the VAT gap peaking in 2005-06, and its ongoing incidence is likely to prompt the taxman to request extra resources.
The request is likely, says law firm Pinsent Masons, because despite “considerable firepower” being directed against MITC, its peddlers tend to move on to another fraud once one area of criminal activity is shut down.
However the gangs retain their modus operandi – buying goods (such as metals or computer chips) VAT-free from other EU states and then selling them at a VAT-included price in Britain, without paying the VAT to HM Revenue & Customs.
“HMRC is rightly proud of a string of major successes that it has had recently in clamping down on criminal tax evasion,” reflected Pinsent Masons’ Darren Mellor-Clark.
“[But] they are likely to be disappointed that the gap has increased by £3bn in just over a year.”
In 2008-09, HMRC figures show that the peak in the VAT gap was because of an increase in debt due to the impact of the recession, but the department is said to now be getting to grips with the most conventional forms of VAT avoidance.
In particular, the Revenue has the power to levy VAT penalties against businesses and additional fines against those which fail to cooperate with VAT investigations, with such penalties ranging from 30% to 100% of the tax at stake.