Alcohol illegally smuggled into the UK is costing the taxman £1.2bn in lost revenues (Reuters) Reuters

The UK taxman is so in the dark about alcohol duty evasion that the UK Treasury loses £1.2bn a year in revenue from booze smuggled illegally onto Britain's shores, according to a report by a group of MPs.

At a time where the UK enters a double-dip recession and the tax generated from alcohol duty could help the economy further, better intelligence gathering on alcohol duty fraudsters and cross-border collaboration with overseas authorities, as well as ensuring all those caught are pursued through the courts to reinforce the deterrent of the law, are all essential on minimising lost tax receipts from imported beer and spirits, said MPs.

"Alcohol fraud is big business," said Richard Bacon MP, who sits on parliament's Public Accounts Committee which compiled the report. "HMRC's drive to tackle alcohol duty evasion is being seriously hampered by a lack of information."

Each year HMRC collects £9.5bn from alcohol duty.

MPs were shocked that there were only six convictions for alcohol duty fraud in the four years to 2009/2010.

"This sends the wrong message to perpetrators and the wider public about the Department's commitment to reducing alcohol duty evasion," said Bacon.

It was also noted that there had been no full evaluation on the amount of tax lost from smuggled wine, despite past commitments that there would be.

"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," Bacon said.

HMRC estimates that while 450m litres of beer is exported to the continent a year from the UK, 180m is re-imported illegally.

"Alcohol duty fraud 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," said the report.

"The Department told us that while there are legitimate reasons for suppliers to move UK-produced beer between the UK and Europe, the volume of UK-produced beer exported to Europe is about three times the amount required for the legitimate market."

MPs said the figures show that putting investment into cracking down on alcohol duty evasion pays off.

In 2010/2011, HMRC spent £25m on its strategy to tackle booze tax evaders and managed to deliver £433m of financial benefits, with an approximate rate of return of £17 in for every £1 spent out.

"However, the Department was unable to provide clear evidence that it targets its resources effectively to secure the best possible rate of return, and therefore value for money, from the full range of its compliance and enforcement activities, including its work tackling alcohol duty fraud," said the report.