FEfocus Editorial - Can't taxman turn a blind eye to #163;200m?

25th February 2011 at 00:00

Last year, the taxman found himself in possession of two pound;80 million tower blocks in Dubai, pound;6 million worth of luxury properties in Knightsbridge and Buckinghamshire, and a fleet of supercars including a Ferrari 360 Modena convertible. Nice work.

This was not the result of some out-of-control public sector pay agreement; it was a consequence of VAT, a terrible tax, which is fiendishly complex to collect, hurts the poor the most, and as this week's survey of colleges now reveals, skims about 3 per cent of the budget off the institutions that educate some of the country's most deprived students (see page 1).

The property portfolio and fancy cars were seized from a pair of fraudsters who exploited the murkiness of the VAT system in a scam known as "carousel fraud". They sell goods from one company to another, all controlled by them, with the final one pocketing a VAT refund from the taxman. Company number one, which owes HM Revenue and Customs 20 per cent of the original cost of the goods, disappears without trace, and the ill- gotten proceeds of both ends of the transaction go into luxury houses and cars, at the public's expense.

At its height, carousel scamming was reckoned to cost the Revenue pound;10 billion a year. The Revenue's own estimates were lower; last year it estimated it had reduced the shortfall to pound;1.5 billion. That means for every pound that VAT brings in for Government, two pence was pocketed by criminals. Think what we could have done with that pound;1.5 billion.

But while the carousel fraudsters are getting fast cars and penthouses, nobody else is benefiting from the parallel misery-go-round whereby the Government gives colleges money so they can pay the VAT bills that they owe the Government.

According to tax expert Richard Murphy, this regressive tax, which eats up nearly 20 per cent of the entire income of the UK's poorest people, has twice the rate of avoidance and evasion compared to income tax. So, it is mainly paid by poor, honest suckers. And are there any more poor and more honest suckers than the earnest toilers in our colleges today?

One feels that some of the characters with an eye for the main chance, whose creative approaches to franchising in the 1990s ended in court cases, would have had some ideas about how to solve this problem.

In an ideal world, VAT would be abolished or drastically reduced and replaced with a more transparent, efficient and fairer form of taxation.

But since that is not on the cards, and with Government saying its hands are tied by European laws, perhaps this modest proposal is in order. It has not gone unnoticed that the Revenue, which handed the ownership and management of hundreds of its tax offices to a company based in a tax haven to save itself pound;1.2 billion, is more than capable of turning a blind eye to tax avoidance when it wants to.

So why doesn't the Revenue just ignore the tax for colleges and pretend to our European pals that nothing has changed? After all, if up to pound;4.8 billion of cash from Vodafone can be written off and the Revenue's permanent secretary for tax, Dave Hartnett, can declare that officials were being "too black and white about the law", then looking the other way while colleges keep a couple of hundred million should be simplicity itself.

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