a) no. of flat rate VAT reg. businesses:

Total registered = 2M (http://www.statistics.gov.uk/cci/nugget.asp?id=1238)

I'm taking a stab at 10% are flat rate. So 200K businesses are on the flat rate scheme.

b) average income

50K (ex vat)? Too conservative?

c) avegage percent

Let's say 10%. May be a little higher.

Now, we have to work out what proportion of those businesses complete the VAT form incorrectly. This is a little more complicated as it's dynamic but some thoughts:

1) People who already complete the form will, in the main (but certainly not always), continue to do it correctly.

2) A proportion of newcomers to the scheme will get it right and others wrong.

So ... let's assume an average over a few years or so at 10% of the total users are filling out this form incorrectly.

HMRC should get = 200K x 50K x 1.175 (VAT) X 0.1 (flat rate) =

£1.175 BN

What it actually gets is 90% of the above + the amount paid by the ex-VAT 10% = 1.0575BN + (20K x 50K X 0.1) =

£1.1575 BN

The difference? £17.5M a year.

Assume, upside/downside of +/-40% means

A *broad* estimate of the inaccuracy is that it costs the UK Taxpayer £10-25M a year.*

* Disclaimer: It's not yet 9.30 so the maths above just might be horribly flawed!

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