HMRC Overlooks Billions in Unpaid VAT

July 3, 2013 Taxation in UK

Tax DayLONDON – British tax authorities are not carrying out enough checks on submitted VAT returns, and the oversight has lead to significant underpayment of VAT.

The HM Revenue and Customs (HMRC) failed to collect over GBP 9.6 billion Value Added Tax (VAT) over the 2010 fiscal year, mainly due to a lack of adequate procedures for verifying and checking VAT returns, according to a new report released on July 2nd by the National Accountability Office.

The amount of tax missing is estimated nearly 10 percent of the VAT expected to be collected nationally over the course of 2010, or approximately one third of the entire tax gap of the country.

In order to reduce the amount of VAT which is unpaid every year, the HMRC is developing the Real Time Information (RTI) system to automatically check all incoming VAT returns in order to detect omissions and mistakes.

The NAO noted that while the RTI could help boost the collection of VAT in the future, the development costs are already over budget and the full implementation may have to be delayed beyond the scheduled roll-out date of October 2013.

The findings in the report also showed that while the HMRC has taken some steps to address the problem collecting full information about sales made by online traders, more effective measures need to be implemented to ensure that business do not neglect paying their VAT obligations.

Photo by davidciani