The Telegraph reported yesterday that:
People who receive cash-in-hand payments for goods and services are harming the economy, according to HM Revenue & Customs (HMRC) most senior taxman Dave Hartnett.
Speaking to the Daily Telegraph, he criticised tradesmen and other workers who try to get out of paying tax by asking for their payment in cash and said there will be a crackdown to catch individuals who do so from April 2012 onwards.
Mr Hartnett claimed evading VAT or income tax is 'diddling' the economy and will lead to further cuts for things like hospitals and schools.
"Tax provides the funding to run the country: hospitals, schools and everything else. Every time someone pays cash in order not to pay VAT, the nation gets diddled," he remarked.
Of course Hartnett is right:
the tax gap, about which I have campaigned for years, and which I forced (via the TUC) onto HMRC's agenda and in turn into national debate, is of course a major factor in the management of the deficit. Given that the
gap is £120 billion that has to be true.
But let's be clear, welcome as Hartnett's recognition of this obvious fact is, he has ultimate responsibility for the fact that the gap is this big for two reasons.
First of all, he's denied the size of the gap, persistently - and the propaganda his department put out under his direction about how small the gap supposedly is in his view has been used by him and his colleagues to leave this matter alone and to deny its significance. HMRC say the
tax gap is just £35 billion right now (
see the table, here). The numbers are grossly inaccurate for reasons I explain
here,
here and
at length here. The consequence is obvious: too little attention has been paid to the issue and that is because HMRC worked persistently to hide its own incompetence to hide the fact.
Second, using the incorrect data his department produced Hartnett justified reducing the staff in HMRC. The numbers will fall from 100,000 in 2005 to about 50,000 in 2015. And like it or not collecting criminals requires human activity to detect and prove the crime.
Tax evasion is a crime and there aren't enough people now employed to detect much of it - so the tax gap has grown. Hartnett is responsible for that. And we see the result in cuts in services, pensions, disability living allowances, education, health, defence and so much more.
So sure, Hartnett's right - people should not pay in cash knowing the cash will not be declared to tax authorities. But the biggest culprit by far in the creation of the massive UK tax gap that threatens our pubic services is Hartnett himself - and he's just trying to deflect the truth by making the claims he's now seeking to make in valedictory effort to justify his actions.
One might argue if taxes were fairly collected from the major players there’d be no real need for people to be dodging taxes by paying cash. However, as it is, people on the ground are so short of money that paying cash and so avoiding taxes is essential to their very survival. It’s Hartnett and his blundering dishonest ilk that have created these circumstances so in trying to shift the blame for the consequences of his own actions to others – well, he just brings extreme and prolonged social unrest that much closer. I wouldn’t want to be him when the rioting starts in earnest…
I am pleased to see this issue raised because a lot of people are aware it goes on and yet this type of “middling ” tax evasion is rarely referred to by either politicians or the right wing tabloids. Its almost accepted but voters are more angered when such people including taxi drivers etc., then deliberately “minimse” their stated income so that they can obtain the extra child and working tax credits – a sort of double whammy against our society.
For the self employed paying income tax is almost a voluntary matter as in ‘cash will do nicely’.
Your blog does a very good job in demonstrating that corporation tax has more holes than swiss cheese – many of the holes created out of good intentions.
Yes in both cases if tens of thousands of tax inspectors plus a police state was created the abuses could be reduced.
Is there a better way of ensuring that tax is paid at the right time, the right place and in the right amount? My favourite is a SIMPLE limited exemption VAT (per Mirrlees) but maybe your readers could contribute to a workable tax code.
Human beings don’t want to pay tax. Companies don’t want to pay tax. Let us come up with a tax that is difficult to avoid and makes accountants and tax inspectors redundant.
It is not necessary or realistic for the tax system to reduce wealth and income inequality – get the tax revenues in and have social security and public goods do the work.
All tax can be evaded and has to be enforced
Don’t pretend otherwise
But I also agree – simplification is an objective
All tax might be avoidable but worth analysing what is the most and least avoidable in designing tax systems. Bottom must be personal income tax as for self employed decorators, taxi drivers drug dealers and the rest it is practically a voluntary tax.
Corporation tax is prone to being a plaything for well intended Chancellors that want to encourage investment to the UK or R & D investment you name it. Arguably good intentions have rendered it unworkable for tax purposes as your blog demonstrates.
A drug dealer will not pay income tax. He will pay VAT whenever he spends his ill gotten gains. Maybe the US ‘fairtax’ proposal is too extreme but there is a case for a shift to indirect taxation to ensure that everyone contributes.
There’s only a case for such a tax if you are utterly indifferent to the needs of the poorest in our communities and have no concern for their well being
I have long accused you of that
A slight pedantic point, but you include the £28bn owed to HMRC as part of the annual tax gap when it is a one off figure owed rather than an annual amount. The tax gap should not include that.
Of course the fact that £28bn is owed is a massive problem in its own right.
I always make clear that the total figure is at a point in time for that reason
I do not seek to mislead
http://taxjustice.blogspot.com/2012/01/quote-of-day-state-capture.html
This TJN blog includes link to Lords Hansard transcript of a debate on Tax Avoidance on 26 Jan with forceful speeches by Lords Dykes, Phillips of Sudbury and Eatwell asking what the government intends to do about the tax gap, and a pathetic apologist response by the Commercial Secretary to the Treasury.
I note the debate was held at a (late) lunchtime with only 10 members present … intentional or not?