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VAT fraud and evasion

VAT fraud and evasion. Stephen Smith Institute for Fiscal Studies and University College London. Was the shortfall in VAT receipts in 05–06 a one-off, or a lasting problem?. VAT revenue losses to fraud and evasion jumped by £2.7bn in 2005–06 . HMRC publish annual estimates of the “VAT gap”

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VAT fraud and evasion

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  1. VAT fraud and evasion Stephen Smith Institute for Fiscal Studies and University College London

  2. Was the shortfall in VAT receipts in 05–06 a one-off, or a lasting problem?

  3. VAT revenue losses to fraud and evasion jumped by £2.7bn in 2005–06 • HMRC publish annual estimates of the “VAT gap” • The difference between hypothetical full-compliance receipts, based on household spending data, and actual receipts • VAT gap in 2005–06 was £12.4 billion • (14.5% of potential VAT revenues) • Up from £9.7bn in 2004–05

  4. VAT frauds • “Routine” evasion – as with all taxes • VAT is vulnerable to outright fraud, exploiting features which generate entitlement to VAT refunds • Carousel frauds exploit two key features of the VAT system • VAT zero-rating of exports • “deferred payment” of VAT on imports

  5. Carousel fraud: What could be done? • Straightforward things: • More vigorous investigation • But carousel frauds happen quickly • Be more bureaucratic • Make VAT registration difficult • Slow down refunds

  6. Reverse charging • Buyer is made liable for VAT • UK proposed selective reverse charging for certain commodities • Boundary issues • Fraud might move on

  7. Ending VAT refunds to exporters • VAT refunds to exporters break the “VAT chain” • Abolish zero-rating of exports • Maintain the VAT chain across EU frontiers

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