Trade gap narrows after crackdown on fraud

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The Independent Online

Concerted efforts by the UK authorities to crack down on a multibillion-pound VAT fraud appear to have begun to pay dividends, official figures showed yesterday.

Estimates of the extent of the fraud fell to £1.2bn in August, down from £1.7bn in July and a peak of £4.5bn in June. It was the second successive monthly fall according to figures published by the Office for National Statistics as part of their monthly data on the UK's trade with its overseas partners.

The fraud peaked in the second quarter of the year, when trade related to the fraud totalled £12.9bn or 19 per cent of the official estimate of exports of £67.1bn.

If September shows another decline, the third quarter could be as little as £4bn. So far in 2006, fraudulent trades are thought to have amounted to £25.5bn.

"The figures reflect that the strategy we put in place since the start of the year has started to have an effect," a spokeswoman for HM Revenue and Customs said.

In August more than 400 Revenue and Customs criminal investigators swooped on about 70 properties and arrested 22 people suspected of defrauding the Exchequer of hundreds of millions of pounds. There have been five recent trials in which 16 fraudsters have been jailed. About a dozen more cases are due to be brought to trial this year. Revenue & Customs has put 1,400 officers on the case.

The European Union is expected to agree to UK demands to make the buyers, rather than the sellers, in a chain of import and export transactions responsible for the tax.

In its simplest form, the fraud involves importing goods from another EU country free of VAT, selling them at a VAT-inclusive purchase price and then absconding with the VAT.

It turns into "carousel" fraud when the same goods get traded around a contrived supply chain within and beyond the EU, re-entering the UK on a number of occasions with the VAT being stolen each time in a merry-go-round of deception.

For 2004, the latest year for which figures are available, the Government has calculated VAT theft was £1.1bn-£1.9bn on estimated fraudulent trading worth £2.4bn.

The latest figures on trade, which include fraudulent exports, showed the UK's trade deficit with the rest of the world narrowed in August after July's figures were revised to show a much larger gap due to the effects of VAT fraud.