Committee of Public Accounts


Press Notice No. 21 of Session 2002-03, dated 12 June 2003


TWENTY-FIRST REPORT: THE OPERATIONS OF HM CUSTOMS AND EXCISE IN 2001-02 (HC 398)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, today welcomed the decision by HM Customs and Excise to bite the bullet and quantify the amount of VAT and other taxes and duties which are not paid, and urged greater targeting of these key risk areas.

Mr Leigh was speaking as the Committee published its 21st Report of this Session, which examined HM Customs and Excise on: the controls exercised over the storage and disposal of seized goods; the level of co operation Customs receive from Imperial Tobacco in combating tobacco smuggling; the collection of revenue from traders; Customs' debt management performance; and the implementation of new money laundering regulations.

The Committee found that:

The seizure, storage, and disposal of goods and cash are essential functions of Customs, but carry risks of abuse, theft, and fraud. To mitigate these risks, the Department need rigorous management information based on meticulous record-keeping and stocktaking. Disposal of goods and banking of cash should be without delay, unless explicitly requested by an authorised officer for evidential purposes.

Where contractors are used for the storage and disposal of seized goods, their responsibilities should be clearly defined by contract, all transactions should be properly documented, and their records and those of the Department should be on a consistent basis so that they can readily be reconciled.

The Committee was able to assist the Customs in pursuing their concerns about the level of co-operation received from Imperial Tobacco in explaining why so much of the Company's product was being smuggled back into the United Kingdom. Customs report improved co-operation, evidenced by the Company's declining share of smuggled cigarettes. The readiness of Customs' Accounting Officer to work constructively with the Committee has produced positive results.

Customs have produced some striking estimates of the amount of VAT not paid through error, evasion and avoidance (£7 to £10 billion) and of unpaid taxes and duties on alcohol, tobacco and hydrocarbon oils due to error, evasion or legitimate cross-border shopping (£7 billion) in 2001-02. The Department are right to recognise the scale of the shortfall, and to focus their strategy on improving these outcomes. They should now establish milestones for improvement so that progress can be managed and assessed.

In planning visits to traders, Customs should have regard not only to the risk of fraud and evasion, but also to the wider risk of misunderstanding even by compliant traders, and the need for advice and guidance as well as enforcement activity. There is scope to increase revenue yield by visiting a significantly higher proportion of traders.

There are a number of reasons for the threefold increase in debt owing to Customs over the past five years, such as increased identification of tax liability, and less favourable economic conditions. The Department now need to show, however, that they can reverse the rising trend, in line with their Public Service Agreement targets

Mr Leigh said today:

"I am pleased to say that HM Customs and Excise, with the assistance of this Committee, have now been able to improve co-operation with Imperial Tobacco. As a result, the proportion of cigarettes smuggled into the UK that are Imperial Tobacco brands has declined.

Customs' estimates of the amount of VAT and other taxes and duties which are not paid are a genuine cause for concern both to taxpayers and to those trading honestly. I welcome their decision to quantify the magnitude of the problem. While these figures make uncomfortable reading, Customs are right to bite the bullet and this transparency has made an important contribution to public accountability. Having done so, Customs now have a very clear focus for targeting their energy more directly on these key risk areas. We look to them to establish milestones for reducing this shortfall and to ensure that their strategy enables progress to be made very rapidly indeed."


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