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.

Also on a metre for metre basis, business rates, rents, insurance are also usually a lot more for smaller stores than for bigger ones.

Likewise lots of other overheads. Big chains can negotiate deals for bank charges, security, software, training, utilities, etc., whereas small independents don't have the same bargaining options and again, pay more, on a proportional basis.

But, yes, goods for resale are often cheaper if the shop owner goes to Tesco or the likes and buys the BOGOF, multi deals, etc., than buying from wholesalers, which is why places like burger vans usually fill a trolley with bread rolls etc from Morrisons or Sainsbury at the start of the day!

There’s a local takeaway who is cash only. They have two tills. One which they declare earnings on and one they don’t. It’s no secret locally that this is what they do.
How do they get away with it though when it’s well known what they’re doing?!

The same way that obvious drug dealing, money laundering, modern slavery, etc., isn't challenged. The police, councils, govt agencies etc aren't actually bothered about the "low level" stuff and are mainly targeting those at the top, not the street level offenders. It's a deliberate policy. But it takes years and enormous resources to gather evidence and build cases to get "Mr Big" to tack it "top down". Whether targeting the lower level offenders would have a better outcome (i.e. "bottom up") is a discussion that perhaps needs to be had due to sheer scale of obvious offending now happening.

Because it's not really worth investigating most low-level crime and evasion. If someone is (for example) underpaying their taxes by 5k a year, but the cost of an investigation to prove it would be 10k, then it doesn't make sense to pursue it.

There's also the fact that most agencies are hugely understaffed and don't have the resources to come and look at the chippy in a little town somewhere to make sure the owners are declaring the income from every single fish supper they make. They have bigger fish to fry (ha!).

That reminds me of one of my first tax enquiries back in the early 90s. Our firm had a client whose "books" looked fine, good turnover, good margins, healthy profits, etc., all tax returns and submissions on time. Classic case of a "low risk" business.

That was in the days of routine/random VAT inspections where a local VAT inspector would turn up for a day to look through the books, invoices, bank statements, etc. All perfectly normal - they'd often pick up a few things, send a bill for a few hundred pounds of tax accidentally unpaid due to overclaiming something. We'd often have them in our office if we did the book-keeping, VAT returns, or payroll, as we'd be more help explaining the books and returns than the client.

This particular client, we had no concerns, VAT inspector came in, we gave him an office with the usual boxes of books, invoices, till slips, bank statements, etc., and left him to it.

We only started to worry when it got to 5pm and he said he'd be back the next day, which was pretty unheard of. He'd not spoken to us other than pleasantries, not asked any questions, etc. When he did the same at the end of the second day, we started to worry! The partner asked a couple of us who'd been involved with the books to stay behind after work, and we spent a couple of hours reviewing the files, tax returns, yearly accounts, etc and none of us could spot anything to explain why the VAT man was going to take at least 3 days on the review!

After 5 days, he said he'd finished. Refused to talk to us about what he had or hadn't found. Just said he'd be in touch.

It all went "legal" from then on. Client ended up being sent to prison for tax evasion.

It turned out he'd not just been siphoning off some sales into a different till - he'd have got away with just paying the tax and a fine if he'd done that! What he was doing to make the percentages look right, was also buying stock from different wholesalers and not putting the costs through either (to much cost without sales incomes would bring margins down to arouse suspicion). So, HMRC (Or HMCE/IR as it was then) prosecuted him for complex tax fraud. They'd discovered what he was doing because the VAT man had done a record check of various wholesalers, taking notes of customers, sales invoices dates and amounts etc., and then going round their "customers" cross check the customer business (shop, cafe, etc) was claiming the same expense and the wholesaler was showing as income - basically cross checking one business to another. When he discovered our client hadn't been claiming costs for purchases from this particular wholesaler - not just one invoice that could have been "forgotten", but literally dozens and dozens of invoices not claimed for, he identified what was going on which is a basically common tax fraud of "two sets of books", not just splitting sales, but two completely different sets of ins and outs to stop margins and percentages looking wrong.

Quite fascinating when you see the lengths some people go to when it comes to tax evasion, benefit fraud, etc. It's FAR more than pocketing a bit of cash or putting some shop sales in a separate till/box.

Trouble is that by ignoring "low level" crimes, you end up with a lawless society and the "low level" fraudsters get away with it and tend to go onto bigger things.

Like parking on double yellows. If all your neighbours do and and aren't getting tickets, you're going to try it yourself rather than walk from a few blocks away on a rainy day!

Certainly with tradesmen, they all talk. If one says he's been doing a bit of tax free "cash in hand" work for years and never been caught, it's tempting for the new guy who's just started out to do it too, whereas he'd probably intended to be fully honest.

The cost of a VAT inspector turning out to spend a few hours checking through someone's books and invoices certainly isn't £10k! That kind of thing also acts as a massive deterrent to business owners if they think their "books" are likely to be looked at, and it may make them more aware and more likely to be honest.

@taxguru I've read about people being caught because inspectors can cross-reference with other businesses. Hiding your cash income is one thing, but when you falsify invoices/documents etc. then that's a whole different ball game.

I imagine that's much harder to do these days with everything turning digital though!

The 10k was just an example - as in, if it costs more to investigate than what the person will owe, then HMRC is likely not to bother.

I agree with you about low-level crime though, but it's certainly the case for many areas of society (not just tax) that the low level stuff just isn't bothered with as it's not worth it. I know of cases where people's cars have been involved in hit and runs (for example) and the police just refer to insurance and don't bother prosecuting.

Yes, but it's a VERY short sighted policy because small/minor crimes are likely to develop into bigger things, even down to things like litter and not picking up dog poo. We really shouldn't be dumbing everything down to cost, a better society for all is priceless and we really need to start rolling back 2/3 decades to where offences were dealt with, rather than this more recently attitude of "nah bother, it's not worth my time", or basically lazy policing (not just meaning police, but other offence power agencies too such as councils, tax bodies, etc).

Oh, I agree with you. I'm just saying that's why many forces (police and government) don't tend to bother with the small things anymore.

My cleaner has always asked to be paid in cash , I don’t say anything as it’s none of my business and I know she only has me and one other client . There’s probably a chance she is asking for cash so it doesn’t need to be declared but I can’t get annoyed about someone getting an extra £50 a week that probably helps feed their kids

The cash in hand to dodge tax has always really annoyed me. I feel that it's another way the benefit system is defrauded and we all pay for it.

My local corner shops have minimum spends for cards.

I prefer to pay the cleaner by bank transfer because I pay £52.50 for three hours cleaning (£17phr) and it makes life easier instead of getting change or over paying one week and underpaying the next.

Do I think the cleaner pays the right amount of tax? Nope. It will be her funeral if she is investigated by the fraud office and found lacking.

Quite fascinating when you see the lengths some people go to when it comes to tax evasion, benefit fraud, etc. It's FAR more than pocketing a bit of cash or putting some shop sales in a separate till/box.

If only they had put 1/100th that effort into legal work.

@inquisitivemind - given that Starbucks are legally required to use transfer pricing to put through all intercompany transactions at arm's length prices, how do you suggest they do this to avoid your accusation of tax avoidance?

It is your bank's responsibility to ensure they are not handling the proceeds of crime by banking your funds. If you pay a building in cash to evade VAT, the bank can't legally continue to hold or process the cash that should have been paid over as VAT. If they find out, they may terminate your banking arrangements which makes life very tricky.

Surely, as a qualified accountant, you can appreciate the difference between legal (in fact, mandated) transfer pricing arrangements which splits taxing rights between relevant countries for cross border income streams, verses illegal undeclared cash in hand where no tax is paid at all?

When we had our shop, we regularly had customers try to negotiate a lower price if they paid cash. If they got a discount, it depended on how much we wanted thevitem sold, and how easy it was to get a replacement. But the implication was the money would go in our back pocket. It never did. If the customer didn't want a receipt we would still write one/print one for our tax records. We dealt with several antique dealers, including one who got sent down for money laundering, so there was no way we would risk our business by not recording sales to him. The other misconception is that cash is cheaper to bank than other payments. It is, but the bank still charged for cash banked in.