Thank you for your letter of 23 October 2007[6] about the 2006-07 estimates of attempted Missing Trader Intra-Community (MTIC) fraud, which were published alongside the Pre-Budget Report.

  As the Paymaster General has previously explained to the Committee, statistics published by the Office for National Statistics, using HMRC data on the UK's overseas trade, provide an indication of the scale and trend of trading activity associated with attempted MTIC carousel fraud. These statistics, along with other operational indicators, suggest most of the MTIC related trading activity in 2006-07 took place in the first quarter.

ESTIMATES OF IMPACT OF MTIC ON BALANCE OF PAYMENTS[7]

Quarter ending	Balance of payments £bn
September 2004	0.6
December 2004	0.7
March 2005	1.0
June 2005	2.3
September 2005	3.5
December 2005	4.4
March 2006	10.0
June 2006	10.7
September 2006	1.8
December 2006	0.4
March 2007	0.3
June 2007	0.3
September 2007	0.3

  The total value of overseas trade associated with MTIC was estimated at £10.7 billion in the first quarter of 2006-07, compared with a total of £2.5 billion for the rest of the year. This, together with operational information on suspect trading activity, is the basis of our confidence in asserting that MTIC fraud reduced dramatically in response to HMRC's interventions.

  More recent data suggest that the fraud remains at historically low levels, with MTIC-related trading activity estimated at £0.6 billion in the first six months of 2007-08. I hope that this clarifies the evidence provided by the Paymaster General in February this year.

  You asked whether the fraud might have mutated to other sectors. Indicators do not suggest any area of significant new exploitation; however, we remain vigilant and continue working to proof our strategy against potential mutations in the goods, people or trading behaviour associated with MTIC fraud.

  You also asked about the verification by HMRC of suspect VAT repayment claims. Those whose claims are selected for verification remain a tiny fraction of the 1.9 million VAT-registered businesses in the UK. The number and value of claims selected for verification, as well as the number of new traders affected by this activity, have fallen in recent months, reflecting the general and significant reduction in the pattern of fraud-related trading activity. The additional traders affected have been identified because of suspect trading patterns indicative of MTIC fraud. As soon as HMRC identifies a claim, or part-claim, associated with genuine business transactions, overheads or expenses, it repays those sums. To date, around 1% by value of the VAT withheld under the verification programme has been found to be correctly claimed and properly payable.

  I hope that this answers your questions and reassures the Committee about our commitment to the continuing success of the MTIC strategy.

10 November 2007

7   Figures issued by ONS 9 November 2007. Back