MPs demand action on lost alcohol taxation

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."

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

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.

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."