Tax fraud has reached its highest level since the onset of the financial crisis, as VAT evasion has exploded, costing Britain more than £3bn a year.

The size of the so-called “VAT gap” due to fraud, the difference between the amount of tax HMRC expects to receive and what it actually collects, is reckoned to have reached £3.3bn, or enough to fund a 1p reduction in the tax of every UK taxpayer.

VAT evasion has become one of the biggest costs to the exchequer and is largely due to HMRC being “significantly under-resourced”, according to BDO’s 'FraudTrack’ report.