Cash-in-hand payments: how much lost tax do they really account for?

A Tory minister has labelled those who pay labourers cash-in-hand as 'morally wrong', using the example of paying a plumber in cash to highlight the wider problem of tax dodging in the UK's hidden economy. So called cash-in-hand payments, where a worker takes payment in cash and subsequently fails to report this income to Her Majesty's Revenue and Customs (HMRC) - thus evading tax - are just one of a number of practices and errors that together account for £35 billion of lost tax in the UK. A report from the Committee of Public Accounts stated that tax lost through the hidden economy "could be over £2 billion". This figure, however, cannot be accurately used to put a value on the cost to the Treasury of paying cash-in-hand, since it relates exclusively to individuals whose sources of income are not registered. In reality a large number of traders who are registered with HMRC escape tax by asking for payment in cash and failing to declare this income. The most accurate value we can ascribe to the loss of tax revenues through cash-in-hand payments is 'up to £8 billion'. This is based on the fact that receiving payment in cash in order to escape tax could come under either the 'evasion' or 'hidden economy' types of taxpayer behaviour as defined by HMRC, the pair of which account for an estimated total of £8 billion in lost tax according to the most recent assessment of the tax gap by HMRC . In 2009/10 the total UK tax gap was £35 billion. Other contributory causes to this amount are criminal attacks, tax avoidance, non-payment, failure to take reasonable care, legal interpretation and error. Non-payment here includes tax lost as a result of insolvency. In this case avoidance refers only to schemes that HMRC was unable to successfully challenge, while the legal interpretation category involves cases where HMRC contentious tax issues which, if identified and dealt with, would have added to total tax receipts. {"dataSourceUrl":"//docs.google.com/spreadsheet/tq?key=0AuZLaKQQs5xpdFZtYmJsbnNGVThfZFljOFNtV0szZ1E&transpose=0&headers=1&range=B50%3AC58&gid=0&pub=1","options":{"vAxes":[{"useFormatFromData":false,"title":"Amount","formatOptions":{"source":"inline","prefix":"\u00a3","suffix":"bn"},"minValue":null,"viewWindowMode":"pretty","format":"'\u00a3'0.##'bn'","viewWindow":{"min":null,"max":null},"maxValue":null},{"useFormatFromData":true,"viewWindowMode":"pretty","viewWindow":{}}],"series":{"0":{"color":"#0b5394"}},"title":"2009/10 tax gap broken down by taxpayer behaviour","booleanRole":"certainty","animation":{"duration":0},"legend":"none","hAxis":{"useFormatFromData":true,"viewWindowMode":"pretty","viewWindow":{}},"isStacked":false,"width":460,"height":300},"state":{},"chartType":"ColumnChart","chartName":"Chart1"} The hidden economy as a whole makes up only 12% of the overall gap, and with three other factors contributing between 25% and 50% more to the tax gap, it is clear that cash-in-hand payments and similar scams are just one small part of a much larger problem. A 2011 Tax Justice Network study using data from a World Bank working paper estimates that the UK in fact loses almost £70 billion annually to tax evasion alone. {"dataSourceUrl":"//docs.google.com/spreadsheet/tq?key=0AuZLaKQQs5xpdFZtYmJsbnNGVThfZFljOFNtV0szZ1E&transpose=0&headers=1&range=B43%3AC47&gid=0&pub=1","options":{"vAxes":[{"title":"Amount of tax lost","useFormatFromData":false,"formatOptions":{"source":"inline","prefix":"\u00a3","suffix":"bn"},"viewWindowMode":"pretty","format":"'\u00a3'0.##'bn'","viewWindow":{}},{"useFormatFromData":true,"viewWindowMode":"pretty","viewWindow":{}}],"series":{"0":{"color":"#6aa84f"}},"title":"Lost UK tax, by category and measure","booleanRole":"certainty","height":300,"animation":{"duration":0},"legend":"none","width":460,"hAxis":{"title":"","useFormatFromData":true,"viewWindowMode":"pretty","textStyle":{"color":"#222","fontSize":"10"},"viewWindow":{}},"isStacked":false},"state":{},"chartType":"ColumnChart","chartName":"Chart2"} With cash-in-hand payments accounting for a theoretical maximum of £8 billion - the exact amount is likely to be two or three times smaller - there is a clear gulf in significance between this and the more pressing problem of large scale tax evasion. Was Gauke right to take aim at cash-in-hand payments, or should the focus be on big business and tax havens? Have your say in the comments below, and highlight any relevant data sources we may have missed. More data More data journalism and data visualisations from the Guardian World government data • Search the world's government data with our gateway Development and aid data • Search the world's global development data with our gateway Can you do something with this data? • Flickr Please post your visualisations and mash-ups on our Flickr group • Contact us at [email protected] • Get the A-Z of data • More at the Datastore directory • Follow us on Twitter • Like us on Facebook