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 thought transaction fees are capped at 0.2% for debit cards and 0.3% for credit cards… I could be wrong though, obviously.

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).

The 0.2% and 0.3% are for Visa/Mastercard the providers of the cards.
The providers of the card readers charge more.
For example, SumUp’s card readers:
“A standard fee of 1.69% per transaction applies for all our card readers.”

The business pays both fees.

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

I saw that report too. I don’t recall them having any good basis for the estimate though.

debit Card fees are capped at 0.2% and credit cards at 0.3%.

processing fees for the business using a card machines are not capped to the numbers you gave. They vary depending on card machine supplier, contract, rates etc.

Whilst it is only a small fee you said you can’t think of another reason to use cash other than tax dodging, so I gave you another possible reason

Fair enough, although I think my point stands. Most small businesses don’t dodge tax, but clearly some do and cash transactions will be a part of that picture.

Yes I agree. Your basic point stands, but the perfectly legal fiscal motivation for a business to be paid in cash and get 100% of what they charge vs 97% of what they charge if paid by card is slightly higher than if it were only a difference of 100% vs 99.98%

Especially a food takeaway business where profit margins are extremely low- some 4-5%. If you’re losing most of that to card reader fees, then you’re working only to keep the lights on.

But yes, tax dodging can be done no matter how payment is collected.

Couldn’t that be avoiding tax if you don’t put it in the bank?

What is the reason some type of business don't accept card payments then? It makes absolutely no sense to me, as you can buy a pint of milk in the corner shop on card. Nail salons for exmaple, the two in my area don't take cards...I cannot think of any other explanation apart from not declaring their real income. I'd like to hear if there is another innocent reason for it because it doesn't make sense at all.

As long as you record the money in on your accounts and the wages out it will be counted for tax purposes.

i did wonder when I was skimming it how they get to their conclusions. Hard to know what you don’t know. I guess there might be a summary of assumptions somewhere although I didn’t look closely enough to find them.

Trades etc who would have taken cash will probably now take bank transfer. They aren’t using a card machine you are just paying an invoice directly into their bank account. I only deal with people I can pay an invoice by bank transfer because I cannot be dealing with the faff of getting cash out. Nothing to do with tax!! Corner shops and the like can’t afford to absorb the fees on people only buying a snickers on the way past so that’s why they often only take cash under a certain amount.

I can. Card machine providers have a transaction charge per item, and it can mount up a lot for small businesses with a lot of card transactions.

@inquisitivemind your comparison to Starbucks is unfair. One practice is illegal, the other isn’t. I do have an issue with tax evaders, but I don’t assume everyone who takes cash is. Anyone who insists on cash, or does a better price for cash is suspect though.

Just looked at the accounts of a convenience store client of mine. Their takings are very roughly 50:50 between cash and cards. Their bank charges are very roughly 50:50 between cash and cards, so there really isn't that much difference.

They have to bank their cash because staff want to be paid by bank transfer (to pay mortgage/rent etc and don't want the faff of taking cash wages to the bank). Suppliers don't want cash as the delivery drivers aren't allowed to accept it (due to risk of theft and robbery). They only pay the odd £50 here and there in cash to random sales reps selling something like a few packs of greetings cards or the window cleaner. Obviously, the tax man won't take cash, nor will utility firms, landlord, accountant/solicitor. So they have to take a few thousand pounds of cash takings to the bank for which the bank charges a very similar rate to the credit card processing firms charging for card transactions.

The owner would prefer to go card only, but his customers aren't there yet and he thinks he'd lose too much trade if he made the decision now. So he still accepts cash or card and leaves it to the customer. The proportion is swinging a bit more towards card year by year, so eventually the time will come when he does go card only - probably when the bank branch closes (inevitably as most are closing!) as he won't want to waste best part of half a day travelling to the nearest big town and back just to take a bag of cash!

Only if you don't declare it.

We have had quite a lot of building work done recently

Everyone wanted payment by bank transfer

I suspect that its because they use accounting software which works with bank payments

If this is a TAAT about the carpet fitting, plenty of people who are fine paying cash were the same ones assuming that was so as not to put the job through in the books. It was also weird because it appeared to be traders that refused anything but cash.

But the National Audit Office seems to consider small businesses not paying tax is quite a big issue.

What has Starbucks got to do with it? Total straw man argument.

You don't have to pay it into the bank, you can pay people with it! We have a small retail business and although since covid most our income is on the card we encourage cash whenever possible. We very rarely need to pay it into the bank, we just pay bills. Mechanic, vets, agricultural merchants are all big bills we can pay in cash, and any random small purchases, ie building supplies, screwfix, A.N. other small shops can all be paid in cash.
And even if we did, it costs less to pay in cash than we lose on a card payment.
Also on card payments through out POS system the money doesn't hit our bank for 3-5days after the sale, that is a long time for someone else to have our money for free. Cash is immediate

Definitely not, i have no idea about the cap but on izettle (which is widely used for small businesses) we pay 1.8% I think. Plus a flat rate of a few pounds every time it is transferred to the bank- so we have it set to once a week rather than daily. It doesn't cost the customer anything.
I think your figures might have the decimal point in the wrong place!

Every time someone pays by card, the business has to pay a transaction fee @DreamyRedNewt. That's a lot of money for a small business that doesn't make huge sums of money per transaction.

Chain shops can easily afford to suck up those fees - smaller shops are "supported" by bigger ones and can make more of a profit because they have big buying power that your one-man-band just doesn't.

That's why lots of businesses insist on cash below certain amounts, otherwise it's not worth it.

I used to work in collections for a bank - both loans and credit cards.

People who would refuse to pay their loan or cc, even when had funds to pay, always withdrawn up to the nearest £10 in cash. As anyone at the bank could see what the customer was using the cash for. Then said that they are skint. Could be £500 on a drugs binge etc

Cash is for criminals, money laundering, tax dodging and benefit fraudsters.

Money laundering, have you watched Ozark??? Eye opening!

But they charge more than the chains for those items, presumably to cover costs like these.

But the merchant fee is based on a percentage of each transaction that goes through the till - so charging higher prices doesn't actually make any difference in that respect.

The higher prices are generally because it's expensive to be an independent store - you don't have the buying power of a chain and you don't have the "brand power" of a chain either. You also have to factor in your own holidays, time off etc. which isn't an issue in a massive chain store with access to other staff who can cover.