Government launches major VAT offensive

New specialist staff, 'expert in identifying and tackling abusive and artificial tax avoidance schemes' will lead the crackdown and seek to 'proof' legislation against potential loopholes.

The decision to launch the offensive signals a major change in government philosophy which now regards avoidance as an abuse, with economic secretary John Healey making it clear in a foreword to a policy paper: 'We will offer increased support to businesses who are prepared to pay by the rules, but we will take tougher action against those who continue to abuse the VAT system through fraud, avoidance and non-compliance.

'The strategy is designed to reduce VAT losses, produce additional VAT revenues and stop businesses that break or bend the tax, law competing unfairly with those that abide by it.'

The move follows the success of last year's anti-tobacco smuggling strategy.

The paper makes clear the government's view: 'People who abuse the tax system undermine the principle that everyone should pay their fair share and attack both the stability of the public finances and the government's ability to deliver world-class public services.'

One of the targets will be 'organised criminal groups' believed to be responsible for a substantial proportion of the abuse.

But other targets range from those making mistakes submitting VAT returns, failing to submit them on time, defaulting on payments, failing to register when crossing the threshold, deliberately under-reporting liabilities, operating in the shadow economy and committing organised fraud.

The hit list also includes: 'engaging in artificial tax avoidance schemes to delay VAT payments' and 'engaging in abusive tax avoidance schemes to reduce or avoid liabilities'.

The Treasury document said it was neither realistic nor desirable to end these losses entirely and the strategy would focus on VAT fraud by organised gangs, then on abusive tax avoidance and finally on other non-compliant behaviour.

The initial target is to halt the long-term growth in the size of losses and cut it up to 12% by 2005/06 back to levels seen ten years ago.