VAT fraud and errors costing £11.9bn

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

The figure represented a 12% increase over the £10.6bn 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 £3bn of additional VAT payable in 2002-2003 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 and 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.