Better use of data matching between the soon to be combined Customs & Excise (C&E) and Inland Revenue departments is vital to prevent billions of pounds of 'missing' VAT revenues, according to MPs.
While VAT receipts came in at almost £64bn in 2002-03, an estimated £11bn fell through the net, according to C&E estimates.
"Customs needs to take advantage of the merger with the Inland Revenue to improve data matching in order to identify traders in the shadow economy," said Edward Leigh MP, chairman of the Public Accounts Committee.
Leigh spoke as the Committee reported on the scale of VAT losses through fraud error, the prevention and detection of fraud and other non-compliance, and the investigation and prosecution of fraudsters.
The report stressed that the merged departments, to be known as Her Majesty's Revenue and Customs, should "bring forward legislation to allow best use of information in the new department".
The new department should also work towards a better exchange of information on traders between other EU member states, an area that is "particularly important in tackling missing trader fraud".
Mandatory electronic filing of VAT returns is also being considered as a method to further reduce administrative costs.
The new chief information officer for the combined department is expected to be unveiled on 1 September.
Kevin Reed writes for Accountancy Age
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