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Why do they insist on charging the same amount as if they were paying tax ?
Id rather pay someone that does declare what they earn and at least tax is being paid.
If you are not going to pay tax how can they possibly think they can charge the same rate !
Just to add this is what a friend told me...
Paying cash doesn't equal tax avoidance.
my friend said that the funny laugh and wink at the end of the conversation when discussing payment didn't mean anything...it all makes sense to me now.
I suspect the same applies to "Business Consultants", "Entrepreneurs" and "Politicians".
Method of payment and occupation do not equal tax avoidance.
Do you shop on Amazon?
Even some hookers pay tax. (A notorious escort connected to a high profile scandal used to bank at a branch where a friend worked, and was quite open about her job and her accountants and tax charges)
Agree with the Amazon comment, hate it when they are cheapest for something....
Paying cash doesn't equal tax avoidance
@mike you are correct. Tax Avoidance is legally paying the minimum tax. What tradesmen who do cash in hand are doing is tax EVASION which is illegal.
A good friend was a mortgage broker, it was common practice for self employed to state quite openly that what they put on their tax return was not their true income as they did many jobs for cash. They did this as their tax return income was too low to qualify for the mortgages they wanted. The Australian tax authority has the interesting tactic of gaining access to the self employed's mortgage applications and comparing the amounts stated with their tax returns.
I never pay cash for such jobs.
sorry, Paying Cash doesn't equal tax evasion either, it may happen but it's not certain to. Many people still use cash as it's easier, more certain and means you can pay for goods etc with out waiting for it to clear etc.
My standard response when asked "How much for cash?":
"Oh, that [i]was[/i] the cash price." 🙂
Surely the reason they charge the same amount as if they were paying tax is to get more money into their pockets if they did indeed choose to not pay tax? Thereby making the extra money a bit of a bonus for taking the risk of not paying tax. A bit like most other sorts of crime i suppose.
What tradesmen who do cash in hand are doing is tax EVASION which is illegal.
Err no.
When you buy a paper from your local paper shop and hand over cash is that tax evasion?
Some tradesmen would simply rather have the cash than wait for the bloke with the 4 bed house in suburbia and the fancy BMW in his drive to be bothered to actually make the bank transfer he promised to do three weeks ago...
This isn't something I've ever come across unless the person who had done the job is unemployed.
If I was paying cash I'd be looking to save some money. I think standard practise is for them to bill for so much, to cover materials and so many hours, then to take some cash to benefit both parties...this works doubly well if the person paying earns a bit on the side too.
And "cash" can often just mean an immediate payment - by cash, cheque or debit card. A lot better for a business than waiting 30 - 90 days for someone to settle an invoice.
Yup, plenty of good reasons to ask for cash other than tax avoidance. You have it there and then rather than invoice and wait a number of days (losing interest, out of pocket for materials, possible cash flow problems, etc.) Usually reasonable to ask for some discount due to these benefits.
Whether the tradesman decides to then declare that cash is his business.
OP's friend is sanctimonious enough to assume that cash payments mean tax dodging, but not so honest as to not want a cut of the action!
I never understand this obsession with self employed tax "avoidance". It's legal, so what's the issue?
I'm PAYE, and given HMRC's propensity for sticking me on tax code BR1 every sodding year I have to chase them up to make sure that my tax code is changed back so I pay the minimum legal amount of tax.
What's the difference? Is it sour grapes? I know for a fact that if I were ever to go self-employed I'd make damned sure that I never paid a penny more than I needed to, and I'd take advantage of all the random little tax peculiarities that the government has seen fit to introduce. The one that springs to mind is one for small service companies and VAT - charge 20% on your invoices, but only pay 13% to HMRC. No idea how that works, but it's legal so why not take advantage?
When your self employed it's tax efficiency not avoidance, and yes that means paying the legally required amount of tax.
Anyway the OP's mate obviously thinks the massive gaping hole in the UK economy is due to commoners doing cash in hand work.
Odd thread. In my experience a tradesman has always given me a discount for paying cash. Whether they declare that income is another matter and not my business.
The usual giveaway is when they don't want to give you an invoice. That's pretty good evidence that tax evasion could be taking place. The interesting moral question is whether that makes the payee an accessory to tax evasion.
oh dear oh dear I cant believe you lot sometimes...so righteous when it suits
Anyway the OP's mate obviously thinks the massive gaping hole in the UK economy is due to commoners doing cash in hand work.
I don't think he thinks that
t...The usual giveaway is when they don't want to give you an invoice
you couldn't have said it better
As above, cash is fine if put through the books correctly.
Obviously though cash is also easier* to not put through the books correctly 🙂
* than other payment methods.
I had this just last week. I had a screw embedded in my car tyre and went to the local garage to have it fixed. The cost was £10 for cash or £10 plus VAT if I paid on my card.
As it happen, I found a fiver on the floor while waiting so happily paid cash 🙂
EDIT - makes no sense
I don't think the odd cash job is any less 'honest' that buying a new bike on 'bike to work' scheme with no intention of ever commuting on it.
is that like hoping not to get caught on import duty & VAT too?
I don't think the odd cash job is any less 'honest' that buying a new bike on 'bike to work' scheme with no intention of ever commuting on it
There's some logic in that, but I'd be surprised if the average self-employed person taking on cash-in-hand work is only doing it once a year.
My moral compass certainly won't allow me to get a new stead on the bike to work scheme knowing my nearest office is a 160 mile round trip.
I'd love to see how many builders, plumbers etc declare all their cash/earnings.
Look at it this way- you get paid say 30k in cash. Your going to be paying tax on 20k of that. You do a hard job and iregular hours. How easy would it be to declare you only made 15k last year? For one thing that dreaded VAT bill would be tiny. If your disorganised, spend as you earn- under-declaring would become the way of life.
I wonder how many people slip easily into this? Lots- tempting I'd say.
WHO can say otherwise? In Greece ^ is rife.
[b]Being PAYE is easy- how many of us given the choice would actually declare the right figure or adjust it slightly as it seems to much?....[/b]
@mike _ I would not be surprised to see that the total amount of tax evaded (ie illegally) was greater as a result of cash-in-hand traders than it was via schemes like the one Gary Barlow was involved in.
@stilltortoise - it is your business if there is a shortfall in government taxes and we end up with cuts to state funding for NHS etc or if as is likely PAYE taxpayers have to take up the slack.
The one that springs to mind is one for small service companies and VAT - charge 20% on your invoices, but only pay 13% to HMRC.
Ermm....it doesn't in optics par of what you pay for is a medical service which is non vatable at the front and rear end of the transaction, therfore to make life easier for both gov't and accountants opticians practices are allowed to work on a lower vat rate (that has to be negotiated with hmrc)
How easy would it be to declare you only made 15k last year?
It would be easy for a nurse - a hard job and irregular hours - to break into your house and steal the savings from under your mattress. Is tax evasion any more/less illegal than that?
The whole question of paying tax does seem to muddy the waters between what's morally right/wrong and what's legally right/wrong.
it is your business if there is a shortfall in government taxes and we end up with cuts to state funding for NHS etc or if as is likely PAYE taxpayers have to take up the slack.
So do you suggest that every time I spend money I have to satisfy myself that the business is not evading tax? I don't have the time, wherewithal and energy to do that. Sorry
[i]schemes like the one Gary Barlow was involved in.[/i]
I dont think that was illegal (ie. evasion) it was an avoidance scheme which failed to work. i.e some clever accountant thought he had spotted a loophole, but hadn't.
Tortoise - There is more than some logic. Its tax evasion trough fraud. In both instances the individual is making a decision to avoid tax because they think they have 'already paid enough' that year. pay.
Marcus, the cycle to work scheme is a really good example to be honest. I get the impression it is morally accepted throughout the whole management structure of a business that the staff can "take advantage" of a "tax break" to buy a bike on the cheap, yet never use it within the rules of that scheme.
I suppose another daft analogy is claiming child benefit but never having any children, but that might be a tougher one to get away with 😆
Cash + unwillingness to produce an invoice = probably not paying any tax.
cash + invoice = probably fine.
🙂
Tax avoidance is a bit like doping in sport.
We'd like everyone to be whiter than white and compete on bread and water / pay the maximum tax they can but in reality if we are in the situation we would do the maximum possible under the rules.
The fault lies with the rule makers failing to adquately draw a line and police the rules which leaves grey areas where people who have a different interpretation to us create resentment and jealousy.
People like to think we have an inate sense of fair play but that is bollocks.
People like to think we have an inate sense of fair play but that is bollocks.
Indeed, and HMRC hasn't helped matters by being more aggressive about tax collection.
jfletch, it's nothing like doping in sport. Doping in sport is illegal. As you point out, tax avoidance is just working within the rules to pay the minimum amount of tax possible. Morally wrong perhaps, but not illegal
Tax [u]evasion[/u] is like doping in sport, since that is actually illegal and is where this whole thread started i.e. self-employed allegedly not declaring cash income.
Im finding some of this very confusing.
So some of you would want a discount for cash, yet still want an invoice and expect the tradesman to declare it?
I very rarely get offered cash (im a painter), if a customer asked me for a cash discount, then declared that he still wanted me to lose 20% of that to income tax I would unsurprisingly decline 🙂
I dont think that was illegal (ie. evasion) it was an avoidance scheme which failed to work. i.e some clever accountant thought he had spotted a loophole, but hadn't.
Its legality was unknown - that's why HMRC require you to declare the use of a tax avoidance scheme, so they can decide whether or not to take it to tribunal and get a ruling - which they've now done.
A glance of the ruling was interesting - the judge said (I paraphrase) that no-one with any kind of knowledge in the area could reasonably believe it to be anything other than a tax dodge.
anything other than a tax dodge.
Which means what? It's daft enough that we have "tax evasion" and "tax avoidance" as two different practices in the eyes of the law. I know you were paraphrasing, but where does "tax dodge" fit into this?
Which means what? It's daft enough that we have "tax evasion" and "tax avoidance" as two different practices in the eyes of the law. I know you were paraphrasing, but where does "tax dodge" fit into this?
Its legality was undetermined. As a general rule, schemes whose primary purpose is to avoid tax are unlawful - so the issue here was whether or not Barlow's scheme fell into that category. That judgement has now been made.
As a general rule, schemes whose primary purpose is to avoid tax are unlawful
This is where I have to admit I'm out of depth with my knowledge of all this. I thought that working within the rules to avoid paying tax was morally wrong, frowned upon perhaps, but not illegal. As a general rule it is innocent until proved guilty, so how come tax avoidance schemes can be unlawful if the legality is undetermined?
I thought that working within the rules to avoid paying tax was morally wrong, frowned upon perhaps, but not illegal.
It hadn't been determined whether or not the scheme was within the rules.
As a general rule it is innocent until proved guilty, so how come tax avoidance schemes can be unlawful if the legality is undetermined?
Because HMRC had to prove their case - that the scheme was being used primarily to avoid tax. That's now happened, and the rule is that you have to pay the avoided tax back, plus a penalty.
As an aside - my wife is a chartered tax adviser and she says that no-one qualified in the field could possibly have thought this scheme was set up for any reason other than to avoid tax.
This is where I have to admit I'm out of depth with my knowledge of all this. I thought that working within the rules to avoid paying tax was morally wrong, frowned upon perhaps, but not illegal. As a general rule it is innocent until proved guilty, so how come tax avoidance schemes can be unlawful if the legality is undetermined?
@still - working within the rules to reduce tax is not morally wrong, IMO it's just daft to describe it as such. Its totally moral and legal to put money into your pension and get a tax benefit for example. Where it's more complex is when an internal company creates many subsidiaries in different countries and moves money around/makes use of tax laws to pay very little. But the fact is if governments (the people) don't like it change the rules.
With regard to the schemes it is illegal to create a scheme purely to avoid tax, that's why they are dressed up as business investments
The one that springs to mind is one for small service companies and VAT - charge 20% on your invoices, but only pay 13% to HMRC. No idea how that works, but it's legal so why not take advantage?
Not sure what the other reply refering to opticians was, but in the rest of the economy the reason for this is you then don't reclaim VAT on all your expenses to reduce the accountin burden.
E.g. you could buy a crate load of bike parts from a machien shop (and pay the factory 20% VAT), then charge customes 20% VAT on everything you sell, then at the end of the year do a VAT calculation which should result in a figure that is roughly 20% of the value added to the products (i.e. 20% of the markup).
Rather than do that, HMRC just did a calculation that figured out most businesses end up paying 13% of the value of the product (i.e. Value Added was about 200%). So it's really an exercise in avoiding paperwork and protential fraud as it's harder to fiddle a flat rate as you can't reclaim VAT.
If you're a business opperating tighter margins like a shop (it's mainly aimed at contractors selling their services rather than a product, thus a very high value added) then the full system of paying/reclaiming VAT is better.
A tradesman's request for cash payment and an unwillingness to provide an invoice might also be an indication of someone who is working without appropriate business/third party liability insurance . . . good luck with trying to get them to fix a fault/problem now or at some time down the line.
As a general rule, schemes whose primary purpose is to avoid tax are unlawful
This isn't true at all.
To really understand this you need to read an awful lot of tax cases to understand how the law of tax avoidance has developed. Further it can change quite quickly between when a transaction was entered into if one of higher courts introduces a new doctrine of interpretation. In addition there is some legislation which requires transactions with certain characteristics common to mass marketed tax scheme to be disclosed specifically. The primary purpose of which was to ensure the tax authorities did not miss schemes so they had the opportunity to challenge them with the tools (legislation etc) available to them. Their toolchest has been considerably enhanced in recent years. HMRC will look at each scheme on its merits and will often try to reach a negotiated settlement where they think that offers the best value to the taxpayer (i.e the law is ambiguous and they are not certain of success). The worst schemes will be taken to court. The first tier determines the facts of the case that will be taken into account for future appeals. Sometimes they reach rather surprisng conclusions which ties the hands of the later appellant bodies, especially now the quality of the people sitting on these tribunals is not as high as it used to be.
This is just a taster of some of the issues involved, but to reduce it to avoidance transactions are unlawful is a massive oversimplfication.
no-one qualified in the field could possibly have thought this scheme was set up for any reason other than to [b]avoid[/b] tax
Avoid tax or evade tax? It's an important semantic difference as far as tax is concerned and is the point I was getting at. Tax avoidance is not illegal. Why is saving money in an ISA not seen as tax avoidance?
This isn't true at all.
It's a simplification, but to say it's untrue, is untrue.
As you say, under DOTA details of schemes have to be disclosed and HMRC will judge them on their merits, but if you use a scheme whose primary purpose is to avoid tax, you would be well advised to not spend the saving you make...
It is avoid and even some transactions specifically set up to avoid tax may still be effective.
It's a simplification, but to say it's untrue, is untrue.
First, it is only abusive avoidance transactions that are caught by the general anti avoidance rule that was brought in in 2013 so this wouldn't apply to any cases currently in the Press. Second, they are not unlawful they just don't achieve their objectives, this may seem like semantics but it is an important difference. You can get done for penalties and interest but you have not done anything criminal, which I think is how most will envisage something being unlawful. On the other hand, if you make false representations (i.e. lie), you have.
Avoid tax or evade tax? It's an important semantic difference as far as tax is concerned and is the point I was getting at. Tax avoidance is not illegal. Why is saving money in an ISA not seen as tax avoidance?
Avoidance/ evasion isn't quite the binary difference it's portrayed as. If you're using a scheme that meets the HMRC tests under DOTAS, then whilst they may well allow you to carry on using it, they may try to reach a settlement or get a ruling to declare it illegal.
As for ISAs, using schemes as they were intended by the government (e.g. pensions, childcare vouchers) are not seen as avoidance because the government is encouraging you to use them.
I think of it as a sliding scale, with no clear divding lines.
planning
avoidance (that works)
avoidance (that doesn't work)
Evasion
Fraud
Most people that talk about avoidance are probably thinking about tax planning.
jfletch, it's nothing like doping in sport. Doping in sport is illegal. As you point out, tax avoidance is just working within the rules to pay the minimum amount of tax possible. Morally wrong perhaps, but not illegal
I'm afriad it's exactly the same.
As a point of pedantry doping in sport isn't actually illegal in this country but anyway that's irelevant.
My point was to equate the rules and regs put in place by HMRC with the WADA code. In both instances if you are one side of the line you are OK but the other an that is not OK.
As a society we seem to want our sports people/traders to be norwhere near the line, as a sportsman that means pure as the driven snow. But the reality is a sportsman is doing a job. To compete they need to be up against the limits of the line to be competitive. Tramadol is a good example. It's not on the banned list but there is current moral outrage that it may be in use in the peleton, but to an athlete it's no different to ibuprofen or caffene. It's legal.
Same with businesses we would like them to be straight down the line, pay tax on every last penny of earnings. But we exhibt different behavoiurs ourselves and wouldn't hesitate to take advantage of legal tax avoidance schemes such as sallary sacrafice.
The analogy goes further. Most of us would shop a tradesman for not giving a reciept despite us knowing that is over the line. Omerta!
When i go into a small independant newsagent to buy misc goods, or a takeaway etc they never give me a receipt, must remember now on the advice of singletrakers with a chip on their shoulder to avoid them and report them for tax avaoidance, while amazon costa etc pay hardly any tax, Take that.
As a point of pedantry doping in sport isn't actually illegal in this country but anyway that's irelevant.
Wouldn't it be fraud? Haven't looked into it or anything...
[i]The one that springs to mind is one for small service companies and VAT - charge 20% on your invoices, but only pay 13% to HMRC. No idea how that works, but it's legal so why not take advantage? [/i]
That is the Flat Rate VAT Scheme and was brought in to make life easier all round. You pay a percentage of turnover, and the percentage is based on your business type and got from an HMRC published table.
http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm
It's a good system, and really cuts down on Admin plus if you are smart you can save a bit - ie Computer Consultancy is %14.5 but Management Consultancy is 14% while Business Services are 12%.
I learnt my lesson vicariously through my father. He was converting a barn next door to their house to turn into a holiday let. Did a lot of work himself but employed a lot of trades too. One of the guys that did a lot of work for him was paid cash and if I'm honest I think dad was aware that it wasn't all going to be declared and the job was priced accordingly. The guy was prosecuted for a benefits fraud issue (he had claimed north of £50K in benefits whilst working) which snowballed into a tax investigation which ended up with HMRC investigating my father's accounts for proof of payment. Lots of difficult questions, lots of hassle.
I only pay cheque or bank transfer now - and am organised enough to know I'll sort payment asap when requested. If that's not good enough for some tradesmen then they don't have to take the work- there are plenty that will. Besides, getting cash is a right hassle - 20mile round trip and working hours only.