NAO finds VAT misjudgement

Customs & Excise was more than a billion pounds out in its VAT predictions last year, as it struggled against a tide of avoidance and non-compliance.

In a report published this week on the chancellor’s appropriation accounts for 1996-97, the National Audit Office notes a #1.2bn inaccuracy in the forecasting of VAT receipts. Customs and Excise expected to receive #47.9bn in 1996, but netted only #46.7bn.

A Customs spokesman admitted: ‘Great brains have spent a lot of time looking at these forecasts. The problem lies in the ratio of consumer spending to VAT receipts.

‘We were using a pre-recession ratio, expecting consumers to go back to pre-recession spending patterns. But this did not happen. The Treasury has revised the ratio, and it has improved in terms of accuracy,’ he added.

He said the clampdown on VAT-avoidance – ‘whereby some big firms operate according to the letter, rather than the spirit of the law’ – should also make it easier to estimate receipts more accurately.

The NAO also noted revenue evasion by smugglers of excise goods amounted to #950m in 1997. But Customs’ spokesman said this had also been addressed, with the formation of new crack investigation squads. He also revealed a review of the whole ‘fraud and evasion’ area has just been submitted to the Treasury. It is expected to focus on more partnerships with the police and the department of social security.

The NAO report also examined the implementation of self-assessment at the Inland Revenue. Despite figures out this week which show a high percentage of processing mistakes, the report said ‘the great majority of departmental staff indicated they are satisfied with the training received so far.’

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