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Cash in hand - John C. Kirk — LiveJournal

Feb. 11th, 2012

12:23 am - Cash in hand

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The Telegraph recently published an article: "Paying cash in hand is 'diddling the country', says HMRC's Dave Hartnett". I understand his point, but I disagree.

Hartnett's argument basically goes like this:
I call out a self-employed plumber, who turns up at my house to do some work, and I offer to pay him by cheque or debit card. He says that he'd prefer cash, and he'll give me a discount, but he won't give me a receipt. He then keeps this cash in his wallet until he spends it, rather than paying it into his company's bank account. At the end of the financial year, he tells the HMRC that it's been a very quiet year, so he doesn't have much income to declare, and therefore he doesn't have much tax to pay. The HMRC might be suspicious, but they can't prove anything: there are no deposits in his bank account to justify, and no customer receipts to prove that he's been doing jobs. Meanwhile, he's living the high life with all of his untaxed income.

According to this theory, it's my responsibility to stop him dodging tax, either by paying in a traceable way (e.g. cheque) or by insisting on a receipt. If I'm still suspicious, I can phone the "whistleblower hotline" to report him.

I'm sure that there are plenty of dodgy deals going on like this. In fact, I've had a few people explicitly offering to knock off the tax if I pay cash, and I feel uncomfortable about refusing because it seems so weird to voluntarily pay tax when I don't have to. One face-saving tactic is to say "I need to keep a receipt for my records".

However, there are legitimate reasons to pay in cash. From my point of view, it's a simple way to stick to a budget: I can't spend more money than I physically have in my wallet. From the plumber's point of view, banks no longer guarantee cheques, so he'd be left out of pocket if the cheque bounces; similarly, he'd have to pay a transaction fee to accept Visa/Mastercard, and carry a machine around with him.

Moving away from tradesmen, if I go to the chip shop then I pay cash and I've never been offered a receipt. That may mean that they're also running a scam, but I don't think that's necessarily the case: it seems quite plausible that they'd add up the money in the till at the end of each day and then declare all their income. Ultimately, it's their responsibility to be honest on their tax return, it's not my responsibility to police them. I think it's fair to give the same benefit of the doubt to plumbers, builders, etc.



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Date:February 11th, 2012 03:41 am (UTC)
He is correct when he says that people not paying tax results in less tax being paid. That's kind of obvious. But putting the responsibility for 'whistleblowing' in the hands of the people who have a significant financial disincentive to do so seems a bit foolish, regardless to whether it's the most labour-efficient place to put it.
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Date:February 12th, 2012 08:58 am (UTC)
I haven't read his wider comments to put them in full context, but I don't necessarily disagree with him. As you explain in the example above, how can HMRC prove anything about whether the plumber has had a quiet year, far easier to ask the people to fully understand what they're enabling by paying cash. Obviously micro payments at shops are harder to trace, although unless chip shop owners want to pay for everything including rent/mortgage using pound coins, they're at a disadvantage ;0)

If we dont want to take personal responsibility for taking simple steps to present others commuting tax fraud, then we can't really complain about the fact that tax fraud happens. The only real end point to that is some kind of police state with ruthless and intrusive tax inspections on absolutely everyone... or increased taxes for everyone. If the person is explicitly saying they'll give a discount to enable them to pay tax, then you really are completely responsible and complicit in tax fraud, you're helping them steal from the government. "Why should I voluntarily pay more?" maybe because it's the right thing to do and sometimes that costs more money and is harder.

(nb not everyone taking cash is committing tax fraud, not all tax is good, life is complicated etc, I just thought I'd present the counter argument)
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Date:February 12th, 2012 02:15 pm (UTC)
I think we're basically saying the same thing: sometimes it's dodgy, but not always.

I agree with you that if someone explicitly offers to let me dodge tax then I should decline. However, I try to be tactful in these situations. It may be analagous to pirate software, e.g.
Me: "Woohoo, payday, time to buy that computer game I've been waiting for."
Friend: "That's ok, I can burn you a copy, you don't need to pay for it."
Me: "What? How dare you suggest such a thing? I am shocked and appalled."
Friend: "Ok, whatever. I was just trying to do you a favour, no need to be a dick about it."

Admittedly, when I first encountered situations like this with tradesmen I didn't realise that they also benefitted; that makes it a bit easier to decline, when they're asking me to do them a favour. Receipts are useful as a way to avoid insulting the tradesman, and they might be handy later, e.g. if Drain Doctor fix a plumbing problem and it reoccurs within 6 weeks then they'll come back free of charge to fix it again.

Thinking of eBay, they always encourage people to use PayPal. However, that involves a transaction fee (in addition to eBay's fee) so some sellers ask buyers to pay with a bank transfer instead. That may offer less protection, i.e. it's harder to get a refund if the seller cheats you, but I can understand why they do it and I don't think it's morally wrong. It's also why I tend to dispose of stuff via Freegle nowadays, because by the time I've paid all the fees it's not worth the tiny income for selling things.

Taking a more recent example, I locked myself out in December. The locksmith charged £85 to open the door for me, and I offered to pay with a cheque or debit card but he said that he'd prefer cash. I went to the cashpoint, but they only issue £10/£20 notes. I asked him whether he had change; he didn't, so he reduced the price to £80. I didn't get a receipt, but I didn't need one: once he'd opened the door, he didn't make any warranty that it would stay unlocked (nor would I want him to). He also didn't mention anything about VAT, and I don't think he would have offered the discount if I'd already had £5 in my wallet. So, was this a tax dodge? I don't know, but I'm inclined to give him the benefit of the doubt.
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Date:February 12th, 2012 02:19 pm (UTC)
I did like your comment about paying rent in pound coins. I read an article recently about the Bristol pound: apparently business can pay their council tax in the local currency. I assume that the council expect them to pay online, but it would be an amusing way to get rid of any Bristol coins that they've accrued!
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