Booze Matters - HMRC Lose Tax Revenue

I am rather amused to read that MPs are up in arms at HMRC over its "soft" approach to prosecuting people for smuggling booze, and the loss in tax revenue from smuggled booze estimated at being £1.2BN per annum.

There is a touch of irony that those who receive taxpayer subsidised booze are complaining about the voters attempting to get their hands on their own form of "subsidised" booze.

Anyhoo, PAC have published a report today entitled "HM Revenue & Customs: Renewed Alcohol Strategy". Oddly enough it is dated 12th July 2012, the reasons for the delay in publication are not clear.

The report notes that there were no more than six successful prosecutions each year, in the four years to 2009-10.

However, Lin Homer has responded (as per the BBC):

"HMRC's performance in tackling alcohol fraud is measured by the combined impact of both civil and criminal proceedings on alcohol duty evasion - which increased significantly when the strategy was introduced.

Prosecutions are a strong deterrent and HMRC continues to investigate cases criminally where this will maximise impact on the fraud." 

Whilst the figure of £1.2BN lost per annum covers beer and spirits, there is no clear indication of the revenue lost from wine smuggling (much to the chagrin of PAC).

The report notes:

"The department does not make best use of intelligence and technology to detect and prevent alcohol duty evasion.

The department needs to work more closely with the industry to improve its understanding of legitimate export markets, and improve how it works with the UK Border Force to gather intelligence on illegal alcohol imports."

Here is an extract of the summary:

"In April 2010, HM Revenue & Customs (the Department) launched its renewed strategy to reduce the amount of tax lost each year due to alcohol duty evasion, principally through fraud which often involves exporting duty unpaid alcohol to the near continent, which is then redirected to the UK and released to the market with no duty paid. In 2010-11, the renewed strategy delivered £433 million in financial benefits against a target of £390 million.

The Department collected £9.5 billion of revenue from excise duties on alcohol in 2010-11. However, it estimates that there is a tax gap—the difference between taxes due and the amount actually collected—of up to £1.2 billion. The Department has not produced an estimate of the tax gap for wine, despite a commitment to our predecessors to do so. Without reliable information on the scale and nature of duty evasion for each category of alcohol (beer, wine and spirits) the Department cannot tailor its approach to target its efforts to tackle evasion to maximise value for money.

The Department does not yet have good enough information on the returns it secures from investing in specific areas of activity to make best use of the additional £917 million it plans to spend on reducing all kinds of tax avoidance and evasion. It told us that the rate of return on its work to reduce alcohol duty fraud is approximately £17 to £1 but it is not clear whether it could target its resources more effectively to secure a better return on its investment.

The Department is consulting on a range of measures to reduce alcohol duty fraud, including a proposal to introduce fiscal stamps for beer, an approach which appears to have been successful in reducing duty evasion on spirits. The Department does not yet have a full understanding of the costs and benefits of these proposals, including the compliance costs for the industry of introducing fiscal stamps for beer and the impact on legitimate wholesalers and retailers.

The Department does not make best use of intelligence and technology to detect and prevent alcohol duty evasion. The Department needs to work more closely with the industry to improve its understanding of legitimate export markets, and improve how it works with the UK Border Force to gather intelligence on illegal alcohol imports. In addition, the Department does not yet use the full capability of the Excise Movement Control System (EMCS), which facilitates the tracking of freight across the European Union, and could be used to target interventions and investigations more effectively. The Department implemented EMCS in phases over two years as planned, but did not make full use of its capabilities when implementation was completed.

Despite an estimated £1.2 billion being lost each year from duty evasion there are very few successful prosecutions for alcohol duties fraud. In the four years from 2006-07 to 2009-10 the highest number of successful prosecutions in any one year was six and the highest number of defendants was 16. The Department does not take enough account of the deterrent effect of successful prosecutions when considering the cost and benefits of
pursuing perpetrators through the courts."

Cheers!

Tax does have to be taxing.



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