Monday, 8 November 2010

Paying with money

As the new flat slowly becomes populated with furniture and furnishings I find myself spending time queuing up at the tills in Ikea. The folk in front pay with cash, the pay with a huge wedge of twenties, whilst I pay for my purchases with my debit card.

For a few moments I ponder what circumstances lead to people paying for their Ikea purchases with cash, before my mind wanders onwards to whether I should by Ikea chocolate for 39p.

Today in the thrilling world of Twitter, @Pavlunka tweeted the following factoid:-

Something crystalised in my mind, tax evasion isn't just carried out by high earners, the fatcats with off-shore accounts, its also carried out by by the waiters working in restaurants for cash in hand, paying no national insurance or income tax. Me, I pay about 28% of my labours to the state in Income Tax and National Insurance, if I worked cash in hand, I'd be paying none of that.

I pondered, since there are more low earners than high earners, is it possible that lower earners commit more tax evasion than high earners? How could I find out the spread, where would such details of who carries out tax evasion?

It took a wee bit of google-juice, but I found the National Fraud Authority and in January they released the Annual Fraud Indicator report, which had the sort of pie chart I was looking for:-

The 'Tax Gap' being the difference between what the government think they should be collecting and what they actually collect. They don't publish this information often. Anyhoo, rather helpfully there was some spiel about how Tax Avoidance isn't Tax Evasion, isn't considered fraud and isn't counted in the £15billion figure that Pavlunka quoted:-

Actually, Pavlunka's factoid was a tiny bit incorrect, £15billion is the total tax fraud, the tax evasion sector is £7billion. Still tax evasion is seven times the benefit fraud figure, in an ideal world seven times as much effort should be put into combating it. I wonder if that split of resourcing stands.

So, after wandering round the room musing on the pie chart, I thought to question it. Whilst it was the most reliable and detailed information available, there was no other more reliable or detailed that I could find, just how reliable was the information, where did it come from, how could the National Fraud Authority know? Luckily there was a footnote.
So, aye, its all guesswork.

Anyhoo, in answer to my line of thought about how much tax evasion the waiters who are being paid in cash and then spend it in Ikea, well, that's not 'tax evasion', that's 'the hidden economy' and its only 7.5% of the tax gap.

Now in my ideal world there would still be tax fraud, the rule of law will never be absolute, but as long as the cash in hand folk are defrauding the system less than the tax evaders and the tax avoiders, then all is good.

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