cash doesn’t mean tax dodging

[inquisitivemind]

I find this utterly bizarre on Mumsnet that whenever there is a cash request that everyone shouts “TAX DODGING” no matter the circumstance.

I find it even more odd because it’s easy to tax dodge even when paid by card?

I am an accountant, I’ve seen all kinds of things when working forensics.

There are also people who genuinely do not trust banks and prefer the ease of carrying cash.

I also do wonder why people get so up in arms about a builder or a cleaner being paid in cash and potentially dodging a few hundred quid in tax but have no qualms ordering a Starbucks where they use transfer pricing to legally avoid millions in tax…

As a reminder, it is not your responsibility to ensure the person you’re paying for a service is paying their taxes. It’s also very easy to avoid tax when you make electronic payments!

So, I’d love to know how many of you think that cash automatically means tax dodging?

YABU - it always is dodgy
YANBU - it doesn’t have to be dodgy.

I used to (and I'm sure, for some, it is absolutely that) but since having set up my own business and realising how many absolute fuckers do not pay after the job is done and the invoice is sent, my first assumption now is that they have had the same issues and are simply making sure they get paid.
I had a garden job done last week, and having used the guy twice before, got the cash out ready to pay him (he's always given me a fully costed receipt btw and is VAT registered). When it came to pay he actually said, ah actually bank transfer is fine because it's really awkward to pay cash in (online presence only bank) and I don't like walking around with it (he didn't know I'd already got it out). I suddenly realised, ah - it's because he trusts me now and knows I'm not going to screw him over. I've usually made the payment before they've even left the driveway.

I’m a Tax Inspector and I agree with you OP. Some businesses (rare nowadays) use cash for good reasons. Tax dodgers are very sophisticated nowadays.

Isn’t it far easier to “hide” a cash payment though? People can just do a job and get cash in hand and nobody will know - no invoice, no putting it through the books, no adding onto your tax bill at the end of the year or claiming the vat back. Not saying every cash payment is like this but surely it IS easier to hide when the payment doesn’t show up on your bank statement like a card payment would?

I think people like it because it's easier to get than invoicing etc. My lovely cleaner/housekeeper left her old role because her old employers insisted on paying by transfer (and insinuated she only wanted cash to tax dodge) and then never did it!

It would really depend on what the business is, though.

If you are a cleaner, let’s say, on UC and don’t want the authorities to know you have an income or it’ll reduce your payments - then yes, it’s much easier to hide and therefore easier. However, if you are a business, with a van, servicing boilers, you’re not achieving a huge amount hiding the cash - you want to be able to offset expenses against something, what if you want a mortgage? You won’t get one if you’re busy hiding money. A car finance agreement, a loan for anything… there’s a small subsection who do abuse the system and do benefit by hiding cash and the ease with which. This is very small. They’re not avoiding MUCH. It’s the far more complex systems using electronic payments that absolute milk the system in anyway they can.

@PuppyMonkey yes but if it’s picked up it’s fairly obvious that is going on. The real tax evasion and avoidance is on a much bigger scale and more difficult to prove.

I prefer cash. I don't see why my bank and potentially the UK's current government (which would like to know where benefit claimants spend their money) should know what I spend my money on or where I go. I pay cash and am happy to pay trades people in cash too - as OP says, it's not my responsibility whether they pay their tax or not, I assume they do.

Tax evasion is manifold. It's not my job to make sure someone I pay does not evade tax. Nor should I judge what they do without knowing why they do it (whatever they are doing it is not my affair).

No it's not automatic but it's a risk factor. Once upon a time it was probably a higher risk factor than it is now but it still is one.

There’s a takeaway place / restaurant near us that always tries to make their customers pay cash by lying about the card machine being broken (if you tell them you can’t pay for your food that they’ve already cooked unless they allow you to use card then it magically starts working again). I honestly can’t think of another reason for this performance other than to dodge tax.

If you are going to rip off the taxman don't send SMS messages, emails or give the customer paper receipts.

Yet the black economy is one of the largest components of the official tax gap.

The ones who "offer" to take off the VAT if you pay in cash are almost certainly engaged in tax evasion and it's remarkably common for them to offer it, even "proper" small businesses do it.

They are more likely to be money laundering so cleaning dodgy money by passing it through the books.

HMRC staff used to have an idea of what amount certain types of businesses would turn over.

They used "local knowledge" which was easier when tax inspectors worked and lived in the local communities. Now it's all centralised and there's no local knowledge anymore, hence the massive increase in tax evasion, black economy, money laundering, benefit fraud, etc.

Yep, it's so incredibly dull hearing the the whole "cash means their dodgy" trope getting trotted out every single time.

Mostly by people who have never been self-employed and who have absolutely no idea about running a business.

Another reason could be the amount it costs to use the card machine per transaction.

Lots of smaller businesses do this

Because it costs a business money every time someone pays by card.

Cash is cash and what you receive is what you get. There's no transaction fees to worry about.

But they have to pay bank charges to pay in cash at the bank too, if it's more than small/trivial amounts, so that argument doesn't really stack up.

The actual tax dodgy doesn't bother me that much, as you say it's a drop in the ocean. The reason I avoid paying cash is the amount to deadbeat dad's who work cash in hand to avoid providing for their children (possibly that's a personal pet-peve)

That's not always true - I regularly pay hundreds into my business account and it doesn't cost me anything.

But even if it did, you don't need to pay your cash into the bank. You can use it to pay your own suppliers, or take it as wages etc.

The government spends a fair amount of time estimating how much tax is lost through tax evasion from small businesses so if anyone is genuinely interested there is a lot of information here.

the theoretical tax gap is almost 5% which is almost £40bn in the TY 22-23. About 60% of this is thought to be due to small business activity. In reference to this post, whether you think that’s a lot or not is all relative. Clearly not all small businesses dodge tax but clearly some do.

To avoid the fees that come with using a card machine?

debit Card fees are capped at 0.2% and credit cards at 0.3%. The vast majority of businesses factor this very small fee into their cost of sale. But yes, you are right, it could be to save on the minuscule transaction fees, or it could be to under report their revenue to reduce their corporation tax bill. Who knows which.

however, as per my previous post, the government seem to think we are collecting almost 40bn less tax than we ‘should’ be and 60% of that is attributed to small businesses (presumably not all related to utilisation of cash to under report revenue but that would be a part of it).

You know that all card machines utilise 3rd party payers like Visa, Mastercard, plus the intermediary platform and that they both charge businesses a % of the bill to process any payment by card? For a small business it can range from 1-3% of the bill is taken as fees for using a card machine. This cuts into the revenues and gross profits of the business.

However, a payment in cash doesn’t cost the business a fee.