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The Hidden Economy


10/12/2008

By Claire West

A new report published by the House of Commons Public Accounts Committee reveals the immense challenge ahead for HM Revenue & Customs in tackling the hidden economy and non payment of tax by individuals or businesses, says ACCA (the Association of Chartered Certified Accountants).

Chas Roy-Chowdhury, head of taxation at ACCA, warns: “The report recommends that the taxman’s searchlight shines on the home repair and improvement sector and buy-to-let landlords, as well as continuing to focus on small businesses, non-VAT registered businesses and employers’ compliance.”

Assessing the scale of the hidden economy itself is an issue for HMRC, as the report reveals that the department has no reliable estimate of the tax lost from the hidden economy. It also says that HMRC has not fully assessed the risks to tax collection from different sectors and groups in the hidden economy.

Mr Roy-Chowdhury adds: [i]“Detection rates are low at only 1.5 per cent, meaning that non-payers stand less chance of getting caught. Tracking non payment of tax - by ghosts and moonlighters - is an extremely difficult job for the taxman. And it is likely to become harder in the current economic climate. In the recent Pre-Budget report, the government said that HMRC would offer tax payment deferment for up to two years. The authority now has a difficult balancing act to achieve, to chase non-payment while allowing deferment.

[i]“The report advises that the taxman communicates better the benefits of joining the formal economy - but these benefits are hard to understand for most. Cash-in-hand payments are tempting when money is tight and when people are concerned about their income. Doing the right thing becomes harder and people don’t see immediate benefits of paying... continued on page two >

 

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