TAX cheats should face stiffer penalties to help the Treasury recoup more of the '11.9 billion a year it is losing a year in unpaid VAT, MPs said today.

The influential public accounts committee said the scale of losses from fraud and error was "staggering" and called for tougher enforcement action.

Parliament's spending watchdog urged Customs to investigate and prosecute more suspected fraudsters and speed up the legal process.

It also said detailed work was needed to find out how much non-compliance was deliberate and help target resources between education and enforcement.

Committee chairman Edward Leigh said: "A staggering '11 billion of VAT is being pocketed by fraudsters and cheats, rather than being collected for the public purse.

"Traders paying over the correct VAT and the taxpayer in general, will want to see Customs step up its efforts to tackle these losses.

"In particular, I urge Customs to consider tougher penalties for evasion and under-declaring VAT as a greater deterrent."

Mr Leigh, the Tory MP for Gainsborough, also said the forthcoming merger between Customs and the Inland Revenue should be exploited by sharing data on illicit trading.

The report found that: "The scale of VAT losses suggests that more investigations and prosecutions for all types of VAT fraud would be cost effective".

Investigations

Customs presently prosecuted around 90 VAT fraud cases each year and the number of investigations leading to civil penalties had fallen to 270 a year, it said.

But where it did not investigate a trader found to be under-declaring, the maximum penalty that could be levied was '15 of the value of the non-payment.

"Customs should analyse the level of repeat offending by traders to consider whether the number and level of penalties for under-declarations and for civil evasion should be raised to create a greater deterrent," the committee concluded.

Arrangements for speeding up complex fraud trials - which can presently take up to a year to prepare, needed to be agreed with the Department for Constitutional Affairs and put in place quickly, the MPs said.

They also called for more accountants, lawyers and tax advisers involved in the VAT under-declaration to be reported to their professional bodies.

That had only happened four times amid thousands of cases each year, they discovered.

"Customs should make greater use of such sanctions, working with the business community and professional bodies to agree criteria for reporting and the remedial action expected".

The report called for a timetable to be set for the training of investigators to external standards and for Customs to work with the European Commission on improving an EU-wide system designed to combat VAT fraud. Tweet