YUSUFF ALI Thursday, August 2 2012

SEE what you think of this quote from Treasury Minister David Gauke. He said, “Getting a discount from your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax. I think it is morally wrong.”

It seems to me that he knew what he wanted to say but, somehow, it just didn’t come out right. If you look around TT, for example, you can almost identify those who are making lots of money but who pay little or no tax.

In any case, the Minister’s reference to cash in hand has to do with more than just plumbers. He was talking about the artisan and small entrepreneurs who do odd jobs for larger businesses and households.

As a case in point, I suffered a broken hand recently and had to employ a part-time cleaner to help me. For this, I paid her £10 an hour. There were days when she left my house with £50 in cash – cash in hand, as the minister described it. On other days, she picked up anything between £20 and £40. Does the Minister expect me to ask her for a VAT invoice or receipt?

This woman is among millions struggling to make ends meet in these hard economic times and is happy that I called her to do this work for me. But it seems obvious to me that she will not declare this sum to the Revenue. Does that make me immoral as the Minister suggests?

Now let’s try the plumber. Last Christmas, I had a major problem that could have flooded out my house. Yes, Christmas Day. I called around in a panic and one kind guy whom I knew quite well came over and fixed the problem in a few hours. I expected to pay at least double.

The fact is he didn’t want to take any money. Finally, he named a figure because I insisted. I knew that he was VAT registered. But after he did me a favour on Christmas Day, would I have the heart to demand a VAT receipt/invoice from him?

Then, there is my painter and decorator. He did the interior of the house for me. It took him five days which meant that I would owe him £750 at £150 a day. But he charged me “a friend’s price” and I happily paid him the £500 he wanted. I did not ask him for a VAT invoice or receipt either.

Here in the UK, there are all kinds of people working in the shadow economy. There are people who would come home and do your hair, visit you to cut your toe nails and give your feet a total going over, service your car in your own yard, work on your garden, cut the lawn, even walk your dog.

Who would want to ask these people for a receipt or an invoice? Everyone knows that they pay no tax. But the cost of going after them will invariably be much more than Her Majesty’s Revenue and Customs (HMRC) will collect. In any case, there are bigger fish to fry.

As I started writing this story, I phoned a former chairman of TT’s Board of Inland Revenue and asked for a comment. I was told, “Most tax systems are based on voluntary compliance by the taxpayer, with sanctions for non-compliance.

“Compliance has always been a difficult target to achieve, especially where transactions are carried out in cash. It is a challenge for tax administrators because this revenue loss, if recovered, can go a long way towards improving health and education, building infrastructure and generally raising a nation’s standard of living.”

As I said at the beginning, the Minister knew what he wanted to say but it didn’t come out right. HMRC refers to the revenue they lose this way and through fraud as the tax gap. For the record, the Financial Times said in 2009/10, the most recent year that figures were available, the UK tax gap was about £35billion! Think what could be done with that.