MPs demand action on lost alcohol taxation

Bottles The central guess for lost tax on beer and spirits - but not wine - is £700m a year, HMRC says

The UK's tax authorities should prosecute more people for alcohol smuggling, a committee of MPs says.

The Public Accounts Committee says there were no more than six successful prosecutions each year, in the four years to 2009-10.

HM Revenue & Customs (HMRC) estimates that as much as £1.2bn in tax is uncollected each year on smuggled beer and spirits.

But HMRC said a new anti-fraud strategy was leading to more prosecutions.

"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," said the HMRC's chief executive, Lin Homer.

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

Better strategy needed

The MPs on the committee say HMRC has no idea how much tax is lost on smuggled wine.

Analysis

Booze is being smuggled in and out of the UK in mind-boggling quantities, despite the efforts of tax officers to put a cork in the trade and stop the losses to the Exchequer.

Few shoppers are aware that one in every 10 cans of beer on sale is illicit, because the alcohol duty hasn't been paid.

Or that 28,000 truckloads of illicit beer trundle up and down our motorways every year.

Or that of the 450m litres of beer exported, supposedly, to the continent in a year, only 180m litres is actually needed over there.

What about the rest? Well, some of it is sent back from bonded warehouses on the other side of the Channel and then sold cut-price to off-licences and other shops, without any duty being paid.

But much of the booze never crosses to France or elsewhere in the EU. It is taken off the lorries before the crossing and sold on, without anyone troubling Revenue & Customs with a duty payment.

Then, to complete the subterfuge, the lorries board the ferries empty to make it appear that they really are pursuing a legitimate export trade, which isn't subject to duty in the UK.

Add to that the straightforward smuggling of foreign beer and wine into the UK by hundreds of well-organised gangs and you have a massive problem.

Revenue & Customs has cranked up its efforts to collect the unpaid alcohol duty. It retrieved £433m in 2010-11. But MPs want to see more of the gang leaders put behind bars.

Without better information, they say, HMRC cannot be sure its strategies to collect more tax are being effective.

Richard Bacon MP, a member of the Public Accounts Committee, said: "HMRC's drive to tackle alcohol duty evasion is being seriously hampered by a lack of information.

"The absence of information on the scale and nature of wine duty fraud undermines the basis on which the department directs its resources to tackling the problem."

In 2010, HMRC put in place a new strategy to tackle alcohol smuggling and the growing amount of uncollected tax.

The HMRC's estimate of the alcohol tax gap was published most recently in September 2011.

The central guess for lost tax was £100m for spirits and £600m for beer, with a total of £1.2bn as a possible upper estimate, but nothing for wine.

More beer

Alcohol smuggling is often supposed to involve individuals bringing back more drink than they are allowed from trips abroad, or criminal gangs driving into the country with van loads of cheap booze bought abroad.

However, the MPs point out that the main source of lost tax involves smuggling on a much larger, industrial scale.

Beer produced in the UK is first exported by fraudsters to countries in continental Europe, with the tax legitimately unpaid.

The same beer is then reimported to the UK, with the fraudsters failing to pay tax at that point.

The committee's report says three times as much beer is exported to Europe than is actually sold there.

And of the 450 million litres of beer exported to Europe each year, 180 million litres is then illegally reimported.

Although the tax authorities have put more effort into tackling the problem of alcohol smuggling, the MPs say it has still not been grasped it adequately.

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

"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."

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