CIOT – paying tradesmen in cash could be collusion in tax fraud7 August 2012The Chartered Institute of Taxation has indicated that paying cash to a tradesman who offers a discount, for example to take off the VAT from the bill, can amount to collusion in tax evasion. In a Q&A posted on 27 July, the CIOT stated that if the payer pays cash knowing it is in order for the tradesman not to declare it for VAT then that could be colluding in tax fraud. This goes somewhat further than David Gauke had gone, who recently said that paying cash to obtain a discount is “morally wrong”. Miles Dean, founder of Milestone International Tax Partners agrees with the CIOT - “a VAT-registered provider of the services is obliged by law to charge VAT – if he doesn’t and the customer agrees to pay cash without an invoice the two have colluded to defraud HMRC. This isn’t tax avoidance, it is fraud”. The CIOT added that it is right that HMRC are putting more effort into tackling illegal tax evasion, which costs the exchequer 3 times as much in lost revenue as legal tax avoidance. All this does raise the question - is the CIOT and Miles Dean suggesting that the ordinary British subject is now under a legal obligation (as fraud is within the “legal, not “moral” sphere) to oversee and regulate another person’s personal and business tax affairs? If the tradesman refuses to declare the income (for VAT or income tax) then should a customer be legally obliged to refuse his services on that basis alone? Unless the tradesman expressly states to the customer that they intend to defraud HMRC (how many are likely to do that?) how is the customer supposed to know this. Are they deemed to know it (constructive knowledge)? Also, just because a tradesman agrees to reduce the bill in exchange for cash and to knock off the VAT for the customer that does not automatically mean he will fail to disclose the income to HMRC (although admittedly the lack of an invoice might indicate this!). He could still account for the VAT on the reduced price. |
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THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION ADVICE AND ACCOUNTANCY PRACTICES.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION ADVICE AND ACCOUNTANCY PRACTICES.