The problem with cash-in-hand working is that some people do choose not to declare their earnings, and they're almost impossible to trace in cash.
FWIW, HMRC take the view that tax evasion is almost always done by individuals (very rarely companies, although when companies are involved in tax fraud it tends to be because they've been set up purely to facilitate tax fraud rather than as a genuine business that also happens to minimise its earnings or overstate its expenses).
The individuals who commit tax fraud are either the very wealthy - the kind of people who have undeclared bank accounts in Switzerland - or the self-employed cash-in-hand workers.
How much does tax evasion cost the Excequer? Very roughly £20 billion a year, of which £15 billion is down to cash-in-hand workers. (That compares to annual tax receipts of around £450 billion a year, to give you some idea of the scale. The bill for tax avoidance is around £15 billion per annum, so tax evasion is a bigger problem than tax avoidance. That often surprises people.)
£15 billion is about the amount that would be raised by adding 1p to the basic rate of income tax. Or, to put it another way, how much it would cost if the VAT rate was put back down to 17.5%.