£11 billion cost of fraud and VAT errors

Losses from VAT mistakes and fraud cost the taxpayer about £11.9 billion last year, a report today showed.

The figure represented a 12 per cent increase over the £10.6 billion lost in the previous year, according to the figures from the National Audit Office.

But cases involving one of the most serious types of value added tax evasion - missing trader fraud - had fallen, the NAO said.

It said Customs had identified more than £3 billion of additional VAT payable in 2002/3 by registered traders who had either made mistakes in their VAT returns or had deliberately under-paid, in addition to tax evaded by unregistered traders.

The Government has set Customs & Excise a target to stop the long-term growth in the size of the overall VAT "gap".

Measures launched to crack down on the losses included a one-off incentive scheme between April to September of last year to encourage businesses to come out of the "shadow economy" voluntarily.

John Healey, Economic Secretary to the Treasury and Customs Minister, said the problem of the VAT gap had worsened in Britain during the last decade as a result of organised tax fraud and the professional tax avoidance industry.

He claimed the Government was now seeing the results of its decision to try to combat the losses.