It has long been suspected that there is widespread under collection of VAT throughout the European Union. But until now no one realised just how big the figures were. Talk about pouring cash down the toilet!

There are a number of reasons for the shortfall some relating to systematic fraud (such as “carousel fraud” on mobile phones etc) but other reasons include the loss of Britain’s VAT on smuggled alcohol and tobacco, company insolvency, the “cash in hand” economy, under registration by traders, and poor inspection regimes.

According to a study by the European Commission the British Government has been failing to collect almost £1 out of every £6due – a total of £18 Billion.  Mind you the British Government doesn’t agree – it puts the figure at “only” £13 Billion! But whichever figure you accept it is still the highest amount in the entire EU.

But to be fair in some other member states whilst the amount is smaller the percentage loss is higher. For example the UK under collects about 16% whilst in Greece the figure is a whopping 30%. EU wide the under collection in 2006 was 12% – a massive £100 Billion.

For those of us living in the Isle of Man it is a particularly annoying (!) figure as we have just had out VAT income cut by the UK Government.

Although the Isle of Man is not part of the UK (we are a “Crown Protectorate”) and not part of the EU we do take part in the European VAT system. A business based in the Isle of Man registers for VAT with our Customs & Excise and is regarded as being part of the UK VAT system. All the VAT collected goes into what is called “the common purse” – a centuries old revenue sharing arrangement with the UK which also covers alcohol and tobacco duties, as well as car tax and so on. The Isle of Man gets a share of the total (last year about £340 Million) but just a few weeks ago the UK government announced that this figure is to be slashed and we can look forward to having to manage on around £200 Million.

And this at the same time as the UK failing to collect £18 Billion (or just £13 Billion if you accept their own figures). Maybe they should sort out their own internal tax problems before they use their bullyboy tactics on us!

Also See:

Category: Taxation

2 Responses to “Pouring Cash Down the Toilet – £18 Billion Shortfall in British VAT During 2006”

  1. wanlee says:

    It does seem strange that the British government cannot collect all the tax that is due to it. Is this incompetence or are they not trying

  2. Bunker says:

    I liked it. So much useful material. I read with great interest.

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