The Commons Public Accounts Committee has urged HM Revenue & Customs to improve its efforts in tackling the problem of lost revenue from alcohol duty evasion and fraud.

In its 6th report examining evidence of progress made since the revised Renewed Alcohol Strategy of April 2010, the Committee pointed to the Department’s lack of reliable information on the returns secured from investing in anti-evasion measures as an influential factor hampering its ability to reduce the tax gap.

In the instance of wine, Committee Member Richard Bacon MP notes that HMRC has still yet to produce an estimate of the tax gap for wine, “despite a commitment to this Committee’s predecessors to do so”. HMRC has put this down to an absence of information on the scale and nature of wine duty fraud, which “undermines the basis on which the Department directs its resources to tackling the problem.”

HMRC collected £9.5 billion of revenue from excise duties on alcohol in 2010-11. However, it estimates that there is a tax gap—the difference between taxes due and the amount actually collected—of up to £1.2 billion.

In April 2010, the Department launched its renewed strategy to reduce the amount of tax lost each year due to alcohol duty evasion, principally through fraud which often involves exporting duty unpaid alcohol to the near continent, which is then redirected to the UK and released to the market with no duty paid.

However, to date there have been very few successful prosecutions for alcohol duty fraud: In the four years from 2006-07 to 2009-10, the highest number of successful prosecutions in any one year was six and the highest number of defendants was 16. Committee MP’s believe that the Department has not taken enough account of the deterrent effect of successful prosecutions when considering the cost and benefits of pursuing perpetrators through the courts.

The Department is consulting on a range of measures to tackle the issue, including a proposal to introduce fiscal stamps for beer, an approach which appears to have been successful in reducing duty evasion on spirits. However, the report is critical of the fact the Department does not yet have a full understanding of the costs and benefits of these proposals, including the compliance costs for the industry of introducing fiscal stamps for beer and the impact on legitimate wholesalers and retailers.

HMRC does admit to not yet possessing good enough information on the returns it secures from investing in specific areas of activity to make best use of the additional £917 million it plans to spend on reducing all kinds of tax avoidance and evasion.

To see the Commons Public Accounts Committee report, click here. (pdf 215kb)