The House of Commons Public Accounts Committee is concerned that despite £29.6bn of VAT receipts from the general trader population, some businesses might be getting away with not meeting their full liability.
The all-party group’s report on ‘improving VAT assurance’ says that the number of audits undertaken annually by Custums in the seven years up to 1998/99 had fallen from 350,000 to 180,000, but the extra revenue as a result had increased by £130 million from £862 million to £992 million.
The report said: ‘This greater productivity is likely to reflect in part at least the department’s improved targeting of those traders who present the highest risks to the revenue.’However, the fact that such audits are uncovering more undeclared revenue may also point to a greater tendency on the part of traders not to comply with the rules.
It will be important for the department to find better measures of the level of compliance by traders, it continued.
The report also expresses concern that Custums managed to audit 38% of high risk traders, compared to a target of 65%, but carried out three times as many visits to low risk traders.
The report blames this on VAT inspectors not being in the right place and called for this to be put right, for an increase in direct audits, better feedback from traders visited, and a test to take place about the value of sifting traders to identify those most appropriate for a visit and spending time actually auditing.
Committee chairman and former Tory Treasury Minister David Davis said: ‘It is essential that the departments aim their resources at those target areas where the risks are greatest, but its decisions must be justified by reference to objective measures of success. It is therefore essential that the department find better ways to measure the extent to which businesses are complying with the rules.’