Questions I’d ask if I was a tax inspector #3: tell me your top ten customers

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I’ve been noting some questions I’d be asking of selected taxpayers if I was a tax inspector. The first two, asking about cash payments to public schools and private hospitals (for non-UK readers, note that public schools in the UK are, in fact, private – it’s a trap just set up to confuse you) are aimed at tax evasion. I’ve a few more of them to offer, but let’s look at avoidance for a minute.

A massive source of avoidance is artificial self employment – people who set up businesses that, in practice, have just one dominant client and who should really be on the payroll of that client. National insurance and PAYE are lost as a result and expenses are offset against the supposed self employed or corporate income(becasue companies are often used for this purpose) reducing the tax take that should result from what is in effect employment income.

The government has, unsuccessfully, tried to tackle this problem, and I have suggested some corporate solutions. Assuming Vince Cable isn’t interested in the reform of small limited companies though, what can be done? I suggest this question (a form of which I’d love to see incorporated in the tax return) be sent to all self employed people declaring turnover of less than £100,000 a year and to all companies and limited liability partnerships in the same income category:

Can you please supply me with either:

a) If your sales income is predominantly derived from invoiced sales (predominantly means 80% or more), a list of your top ten customers  showing the sums invoiced to each in the year together with a month by month summary of your cash takings if you have any, or

b) A week by week summary of your cash takings for the year and a a list of your top five invoiced customers  showing the sums invoiced to each in the year, if you have any.

Why ask? First to smoke out artificial self employments - which these questions would virtually kill overnight.

Second, to look for cash.

There’s no excuse for not asking this of all self employed people, now. I’d expect the revenue yield to be significant. If only because people would stop abusing rather than take the risk of being found out. And yes, I know there would be a cost. And yes I know HM Revenue & Customs could not process all the answers they’d receive. That’s not the point. The increase in compliance is the point – and provides the reward from the activity.