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VAT Fraud


Andy Leggett HM Customs & Excise United Kingdom VAT Fraud & Control of Refunds and Credits A Strategic Approach to Tackling VAT Losses Scope of presentation The ... – PowerPoint PPT presentation

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Title: VAT Fraud

VAT Fraud Control of Refunds and CreditsA
Strategic Approach to Tackling VAT Losses
  • Andy Leggett
  • HM Customs Excise
  • United Kingdom

Scope of presentation
  • The Strategic Approach in principle
  • The UK Strategy to tackle VAT losses across the
    compliance spectrum
  • Tackling Missing Trader Fraud, including carousel
    fraud The single biggest threat to the UK VAT

The Strategic Approach Six Key Steps
  • Understand the size and dynamics of the problem
  • Understand the nature and extent of the problem
  • Identify resources and tactics needed to tackle
  • Quantify realistic outcomes (impact)
  • Agree and implement tactical plans with clear
  • Continuously monitor, direct and re-direct
    operational/policy and tactics

Benefits of a Strategic Approach
  • Focus on outcomes not outputs
  • Prioritisation, co-ordination and targeting of
    activity and resources
  • Clarity for staff, what the goal is and what is
    expected of them
  • If published, can send a deterrent message to
    potential fraudsters
  • Demonstrate proportionality of actions
  • Provides a rationale for making tough or
    presentationally difficult decisions
  • Knowledge of whether tax losses are rising or

Downsides to the Strategic Approach
  • Estimating Tax Gaps / measuring outcomes is
  • Presentational issues relating to the size of
  • How did losses get so high?
  • What are you doing about it?
  • Why have you not done anything about it before?
  • Delay in outcome data and visible impact
  • No direct link between operational outputs and
    strategic outcomes
  • Accountability for success or failure of the

Estimating VAT losses
  • Two separate but complementary approaches
  • top-down - difference between theoretical amount
    of VAT that should be due and actual VAT receipts
    VAT Gap
  • bottom-up uses operational and intelligence
    data to corroborate top-down approach and
    attribute losses to specific problem areas.

Top-down (VAT Gap) estimate
  • Involves
  • assessing the total amount of expenditure in the
    economy that is theoretically liable for VAT
  • estimating the tax liability on that expenditure
  • deducting actual VAT receipts and
  • assuming that the residual element - the gap - is
    the total VAT loss due to any cause including
    error, non-compliance, avoidance and fraud.

Top Down VAT Gap
UK VAT Strategy
  • Launched April 2003 to reverse the trend of an
    increasing VAT Gap
  • Creating an environment that fosters voluntary
    compliance and deals robustly with those that
    choose not to comply
  • Creating an environment in which VAT fraud and
    avoidance become less economically viable
  • Target to reduce VAT Gap from 15.8 to no more
    than 12 by March 2006

Compliance Continuum

New Business
Assure or Educate?
Bottom-up estimates
  • Top-down measure is comprehensive but gives no
    indication of the nature of the loss
  • Use operational and intelligence data to
    corroborate the top-down approach, and helps
    attribute losses to particular problem areas

Bottom Up Estimates
  • Missing Trader Fraud
  • Avoidance
  • Failure to Register for VAT
  • General non-Compliance
  • 1.06 - 1.73 bn
  • 2.5 - 3.0 bn
  • 0.4 - 0.5bn
  • 2.5 - 4.0 bn

Nature of VAT losses
  • errors on VAT returns
  • failing to submit VAT returns on time
  • Late or non- payments
  • deliberately under-reporting of liability on VAT
  • abusive avoidance schemes to reduce or avoid
  • operating a business in the shadow economy
  • criminal attacks against the VAT system.

Tackling the Spectrum of Losses
  • 1000 extra staff
  • Encourage voluntary compliance
  • Outreach programme
  • Crack down on deliberate non-compliance
  • Targeting risk
  • Strengthened Debt Management
  • Target Shadow economy
  • Tackling avoidance
  • Litigation
  • Legislation

VAT Missing Trader Fraud
Intra-EU supply 970,000 VAT Nil. Reclaims
from HM Customs Excise VAT paid on UK supply
- 166,250
Intra-EU supply 1,000,000 VAT Nil
(A) EU Supplier
VAT not paid to HM Customs Excise tax loss
of 157,500
(E) UK Broker
UK supply 900,000 VAT
UK supply 950,000 VAT
UK supply 920,000 VAT
VAT Missing Trader fraud scale and nature
  • 1999 VAT loss 1.2-2.3bn and growing at
    0.45-0.75bn VAT per year.
  • The skys the limit
  • Organised attack on the VAT system by criminal
  • Main sectors affected mobile phones and
    computer components
  • Creating unfair competition for legitimate

VAT Missing Trader fraud strategic response
  • Nationally co-ordinated strategy launched in
    September 2000
  • Aim to stop the fraud before it can begin
  • Where that does not succeed, identify fraud at
    the earliest point and stop it
  • Top VAT fraud priority therefore, sharper
    priority focus
  • Enabled the re-deployment of existing resources

VAT Missing Trader fraud strategic response
  • Tighter controls at all points in supply chain
  • Development of new regulatory and enforcement
  • New legislation Joint and several liability
  • Working with legitimate business in affected
  • Publicity
  • Working with other EU states
  • Sharply focused and targeted criminal

VAT Missing Trader fraud progress 2000-2003
  • Rapid growth of fraud now halted
  • Fraud in decline for the first time since 1999
  • VAT losses fallen to range 1.06bn-1.73bn by
    March 2004 25 fall in the year
  • Losses one third lower than peak levels annual
    saving of up to 800m VAT a year

VAT Missing Trader Fraud Current State of Play
  • Operational evidence that trade has slowed but
  • Fraudsters changing their tactics
  • Greater use of non-EU supply chains
  • Mobile phones and computer parts still the main
  • Refresh the Strategy to meet new challenges

Impact of the VAT Missing Trader Fraud Strategy
Does the Strategic Approach work?
  • Baseline 2003 VAT Gap 15.8
  • Target to reduce the VAT Gap to 12 by 2006
  • At April 2004 the VAT gap was 12.9
  • Similar successes in other taxes
  • Tobacco
  • Oils

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