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By | Joe Fay 9th May 2006 13:51

VAT scams 'cost UK £5bn' in last fiscal year - claim

HMRC says 'No way'

HMRC has rejected claims that carousel VAT fraud cost the UK £5bn in the last financial year and could hit £7bn in the current year.

The Guardian reported today that figures from the Office of National Statistics suggest the problem , worth £1.1bn and £1.9bn in 2004-2005, had ballooned and the final figure for the just finished year could be £5bn.

Both Her Majesty's Revenue and Customs and ONS have previously said this kind of VAT fraud, also known as missing trader fraud, was a multiplying problem large enough to skew national trade figures and to cause the first ever drop in VAT receipts.

But HMRC today rubbished the £5bn figure and insisted it was fighting back against the carousel merchants.

A spokeswoman for the department today claimed the Guardian had arrived at the £5bn figure by extrapolating from ONS trade figures which detailed a rise in “attempted” fraud and assuming that actual revenues lost would rise at the same rate.

“We don’t consider that a robust way to calculate losses,” she said.

Last summer the department said it was looking at ways to combat the problem, and in January, the government announced it was asking permission from the EC for changes to the VAT system covering the small high value goods which are typically traded in these frauds. The machinery will be put in place in the current finance bill, the spokeswoman said, and can be activated if and when Europe gives the green light.

The spokeswoman said other measures included tightening up the VAT registration process, challenging more refund claims and better tracking of small high value items.

HMRC is also using more civil actions to go after firms it suspects of VAT fraud, which it believes is a quicker way to shut down operations than taking criminal action.®

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