The fraud gap - now at its highest peak since 2007 - has become so large it's worth a whole 1p in tax to each taxpayer, claim experts. Much of this tax shortfall, about £3bn, is is down to VAT evasion, false accounting and tax relief claims says accountancy experts BDO.

Yet the vast majority of fraud, public and private sector, is likely not reported at all.


Fraud fight

"Politicians and the public at large are presently pointing their finger at various multinationals for allegedly not paying the correct amount of corporation tax," says BDO's Simon Bevan.

"However, our latest survey of UK fraud shows that, in reality, it is the fraud element of UK's VAT gap - the theoretical difference between what the Government expects to collect in sales tax and what it actually collects - that is the bigger drain on the public purse."

Bevan estimates the UK VAT gap to be around £10bn in total with fraud accounting for approximately a third of this figure. That figure would likely cover the winter fuel allowance, all free TV licences and compensate pensioners on the pensions credit (£1.4bn) while still leave enough over to build 17 new hospitals (£1.9bn/£113m).

Suspicion

The vast proportion of this tax fraud is thought to be carousel or missing trader fraud. Carousel fraud is when a trader might buy high value small goods like smart phones VAT-free from Europe, before flogging them on, but claiming the VAT relief.

Missing trader fraud is what it suggests: you flog goods to a third party, charge sales tax then close down the company, without paying any VAT liabilities or other taxes.

Although there was an overall drop in reported fraud between 2011 and 2012, that figure should be treated with suspicion says Bevan. "In the vast majority of cases the police do not have the resources necessary to investigate a number of large complex frauds in parallel."

"The consequence of this is that reported fraud figures reflect the ability and the capacity of both the police and the criminal justice system to process them rather than the actual number of frauds committed each year."

Types of Fraud - BDO figures

1) Tax fraud - £603m (44% of all fraud)

2) Unauthorised use/misuse of assets - £209m (15% of all fraud)

3) Counterfeiting - £207m (15% of all fraud)

4) Mortgage fraud - £64m (5% of all fraud)

5) Third party fraud - £62m (5% of all fraud)

6) Money laundering - £60m (4% of all fraud)

7) Employee fraud – £56m (4% of all fraud)

8) Other (including Management, Breach of Regulations, non-corporate and corruption) - £111m (8% of all fraud)