Written by: David Wilson

David Wilson

Technical Associate Director

Online VAT fraud figures don't match Official Statistics

If online VAT fraud genuinely accounts for 13 per cent of the VAT gap, then why, might we ask, isn’t such reported in the official statistics?

The recent report by the House of Commons Public Accounts Committee (PAC) advises that, based on HMRC’s own estimates, businesses failing to charge and account for VAT when selling through online trading platforms cost UK taxpayers between £1bn and £1.5bn in lost tax revenue in 2016–17.

These figures reconcile with the Chancellor’s comments in his Autumn Budget wherein he identified that ‘online VAT fraud costs the taxpayer £1.2bn per year’.

Online VAT fraud would therefore seem to be a significant amount, accounting for almost 13 per cent of the total ‘VAT gap’ of £11.7bn for the period 2016-17.

Yet, in the official statistics 'Measuring tax gaps 2018 edition - tax gap estimates for 2016-17' issued by HMRC, figures relating to online VAT fraud are noticeable by their absence. 

The official ‘VAT gap’ statistics identify that ‘missing trader inter-community' (MTIC) VAT fraud is estimated at less than £0.5bn; that ‘VAT debt’ has remained fairly constant at £1.5bn since 2011-12; and that the figure for ‘VAT avoidance’ of £0.1bn is now so low that it may be omitted from future ‘Measuring Tax Gap’ publications.

If these figures are worthy of their inclusion in the official statistics, then why aren’t there any specifics for online VAT fraud?

Whilst there has been a raft of new measures introduced aimed at the collaboration between online marketplaces and HMRC to tackle online VAT fraud, it remains to be seen how effective these will be; the vaunted ‘memorandum of understanding’ has for example, only attracted the signatories of six online marketplaces since it was launched in April.

More importantly, if online VAT fraud is significant, and is to be successfully challenged, it is imperative that the extent of the issue is accurately identified with a higher level of certainty than is currently the case. If that means changing the methodology used to determine and report the VAT gap, or revisiting estimates given to the Treasury and Public Accounts Committee, then so be it. Consistency of reporting is, however, required.

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