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Paying tradesmen cash-in-hand is morally wrong?

Paying tradesmen cash-in-hand is morally wrong?

So David Gauke thinks that paying cleaners and tradesmen in cash to get a discount is morally wrong.   I'm not sure.  It seems like this is a very common form of tax evasion, and people know it's a bit naughty (i.e. because it's illegal for the tradesperson to fail to declare the income); but I don't think people feel that they have crossed any sort of moral line.

Is it really a moral issue?

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24th Jul 2012 09:09

Legally wrong

If a tradesman says they will charge less if you pay cash then it's obvious that they are evading VAT and income tax so you would be part of that conspiracy.

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24th Jul 2012 09:19

Maybe

petersaxton wrote:

If a tradesman says they will charge less if you pay cash then it's obvious that they are evading VAT and income tax so you would be part of that conspiracy.

Okay, a legal issue but not a moral issue?  

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By BKD
24th Jul 2012 09:31

It's not obvious at all

petersaxton wrote:

If a tradesman says they will charge less if you pay cash then it's obvious that they are evading VAT and income tax so you would be part of that conspiracy.

As alluded to above, there are any number of reasons (tax evaasion being only one) that a trader may prefer cash payment, and thus offer a discount for cash.

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24th Jul 2012 09:20

Is it obvious?

Many tradesmen would prefer cash, rather than wait a few days for a cheque to clear with the added risk that it may not clear, and will give a discount for the removal of risk.

If it were true that cash automatically means non-declaration of income, then no tradesman would have cash sales, and they do.

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24th Jul 2012 09:21

Not Necessarily

There are other reasons that a tradesman may prefer settlement in cash and offer a discount as an incentive to do so.

If we start equating cash payments with tax evasion then we are heading into a world where you have to give your kids a debit card to go to the ice cream van.

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24th Jul 2012 09:25

@Shirley & Roland

I have experienced tradesmen several times offer me a straight 20% discount for cash payment.  That happens to be the VAT equivalent amount, and also represents a vast discount for the removal of risk.  So I would argue it was obvious.

Of course, I would never accept such a morally repugnant suggestion....

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24th Jul 2012 09:53

@thisistibi

thisistibi wrote:

I have experienced tradesmen several times offer me a straight 20% discount for cash payment.  That happens to be the VAT equivalent amount, and also represents a vast discount for the removal of risk.  So I would argue it was obvious.

You would appear to be a victim of another of today's hot topics - the poor standard of maths in the UK (apart from Scotland).  20% of (100+20)% is 24% which is not "the VAT equivalent amount".

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24th Jul 2012 10:18

Thanks

Euan MacLennan wrote:

You would appear to be a victim of another of today's hot topics - the poor standard of maths in the UK (apart from Scotland).  20% of (100+20)% is 24% which is not "the VAT equivalent amount".

Thanks for the Maths lesson Mum :)

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By Old Greying Accountant
24th Jul 2012 12:26

Surely ...

Euan MacLennan wrote:

thisistibi wrote:

I have experienced tradesmen several times offer me a straight 20% discount for cash payment.  That happens to be the VAT equivalent amount, and also represents a vast discount for the removal of risk.  So I would argue it was obvious.

You would appear to be a victim of another of today's hot topics - the poor standard of maths in the UK (apart from Scotland).  20% of (100+20)% is 24% which is not "the VAT equivalent amount".

20% of (100 + 20)% is 20%? {may be you mean 20% of (x + 20%) = 24%x}

A 20% discount would be £24, but the VAT in the gross is only 16.67% (20/120) so they would give a bigger discount than the VAT saved!

Howver, using the assumption this wont be declared, they would still save the income tax on the profit too!!

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24th Jul 2012 09:29

Check out Radio 5 live now.

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24th Jul 2012 09:39

Avoidance & Evasion

Once again the government and the media appear to be getting hopelessly confused between legal tax avoidance and illegal tax evasion.

Agreeing to pay a trader a reduced amount in cash would be legally wrong if it were done with the intention of assisting the trader to evade tax.  There are a number of potential offences committed by the customer (and the trader) in these circumstances such as: Fraudulent evasion of income tax (s144 Finance Act 2000), Fraudulent evasion of VAT (s72 VAT Act 1994), and common law 'cheating the public purse'.  It could also be argued that the criminal offence of conspiracy has been committed (s1 Criminal Law Act 1977).

One could argue that the customer who makes a saving in these circumstances commits a money laundering offence under s328 PoCA 2002 (entering into an arrangement facilitating the acquisition of criminal property by another) because he assists the tradesman to evade tax and thereby acquire criminal property.  Alternatively one might argue that the customer acquires criminal property himself by way of the saving he makes from the tax fraud and so commits a different money laundering offence (s329 PoCA 2002).

But that is quite different from the perfectly legal use of personal service companies, trusts, offshore tax havens, and so on which it could be argued are 'morally wrong but legally right'.

David

P.S.  Of course I am not saying that it is likely that either the customer or the trader would be prosecuted for the offence, nor am I saying that there is necessarily anything wrong with paying a tradesman in cash rather than by cheque, credit card, etc.

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24th Jul 2012 09:40

@thisistibi

Has every tradesman that you have met done that? I have never had it happen to me.

How can you be sure it isn't a try on to get a higher price from you and when you balk they 'make out' they will drop the VAT for you, just to get the sale?

Isn't it good tactics to make out you are giving less when you reduce prices, rather than admit you asked too much in the first place? It doesn't automatically mean they are not declaring the sale, although some may be dodgy. So long as you get an invoice or receipt I don't see why you would suspect anything and without an invoice or receipt for a cash payment then you are complicit (and bang goes your proof of payment and your guarantee!).

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24th Jul 2012 09:47

Politicians

...need to stop using phrases like morally wrong - especially when they describe activity that may well be legitimate.

 

*seethe*

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24th Jul 2012 09:59

@Shirley

Considering I am down south and you... aren't, I would have expected you to be offered more "cash discounts" than me!  Maybe that is sloppy stereotyping.  Do these tradespeople know that you are an accountant?  No doubt that could put them off.

I was down in Brighton a couple of years back buying a painting costing around £400, and tried to negotiate on the price.  They simply refused to budge, which I was surprised at, and then offered precisely the VAT rate off the painting if I paid in cash.  That is absolutely typical of my experiences generally.  Of course I didn't know whether the shop would declare it or not in those circumstances, but why would there be no scope for negotiation, and then suddenly a massive discount for cash payment?  I suppose that is one of the more clear cut examples I can give.

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24th Jul 2012 10:05

Mixed feelings on this matter

I accept that the gov. should attempt to stop tradesman evading taxes by using the black market, etc. For me this only increases the taxes for the rest of us, so I hope that they undertake more work to route out this problem. I agree with the principle of collecting more money from the people that evade tax and therefore less from us others.

However, on the other hand I have a problem is a minister linking cash discount with evasion and making one sweeping statement that fits all. There are many reasons why cash is king, here are just 2:

1) Guarantee payment, ie that flexible cheque will not bounce.

2) Banking and financial problems, hence keeping money out of bank to keep its styruggling business going. Ie the mainstream business banks cutting overdraft limits and therefore as a small business you sometimes have to make a choice about repaying that bank debt or paying for the materials on the next job. I have one client in this position and I have real sympathy with him. after all, he is just trying to get through these difficult times like the rest of us.

The thing I like about the recent media coverage of tax avoidance, is that it is showing signs that the UK gov. is trying to bring back a bit of principles into our system, which in my opinion, has been lost for a long time. So I will praise them on this first step (marketing its strategy) and only hope that they get the next 2 steps right (implimentation and development). Ie. They have the resources (doubt it) to follow through or alternatively this is just another round of scare moungering that the good honest tax payer (yes there are some very good honest trademen that  like to receive cash) just doesn't need.

As for a moral issue, I really do think that it is a moral issue at hand here. We all need to look at this country and decide where our morals lie and how the country should move forward. We have an opportunity to rebuild a better society on the original principles of honesty and fairness.

 

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By blok
24th Jul 2012 10:09

.

I prefer to pay cash for goods and services because I get them cheaper. 

There - I said it.

I guess that the supplier is probably putting the cash in his pocket and avoiding tax, nic and VAT.  Is it my job to stop this?  NO.  Is it my job to look after my family and save as much as I can for the future?  YES.

Short sighted? Yes.  Morally wrong? Probably.  But that is where I am at the moment. 

I give to charity and I look after friends and family around me and trust the government to sort out the macro economics.

 

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24th Jul 2012 10:17

Charity

blok wrote:

I prefer to pay cash for goods and services because I get them cheaper. 

There - I said it.

I guess that the supplier is probably putting the cash in his pocket and avoiding tax, nic and VAT.  Is it my job to stop this?  NO.  Is it my job to look after my family and save as much as I can for the future?  YES.

Short sighted? Yes.  Morally wrong? Probably.  But that is where I am at the moment. 

I give to charity and I look after friends and family around me and trust the government to sort out the macro economics.

 

I've heard the giving-to-charity excuse before in reference to tax evasion.  In my mind it's absolutely no defence - basically syphoning off money from HM Gov and into a charity of your choosing.  To me, that is the same as evading tax in order to buy a Porsche.  But anyway, I agree with the general theme of your post!

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24th Jul 2012 10:12

@thisistibi

I don't think anyone is disputing that some tradesmen will fail to declare sales just as many people will try to avoid paying their taxes, but I don't think it is right to assume that discounting for cash means non-declaration.

 

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24th Jul 2012 10:13

VAT Avoidance

I wonder how soon before the powers that be decide that the legal (for want of a better word) VAT avoidance schemes where traders arrange for their turnover to be below the registration threshold - having customers pay for materials, closing a day a week etc is morally repugnant, unacceptable avoidance too?

I

 

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24th Jul 2012 10:20

Isn't David Gauke's wife,

Rachel Gauke, a tax avoidance specialist? According to George Osborne, he wants to see an end to aggressive tax avoidance!

Does anyone really take politicians comments seriously any more?

 

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24th Jul 2012 10:23

No!

Time for change wrote:

Rachel Gauke, a tax avoidance specialist? According to George Osborne, he wants to see an end to aggressive tax avoidance!

Does anyone really take politicians comments seriously any more?

Rachel is a lawyer who works for LexisNexis, specialising in corporate tax law.  That does not equate to a "tax avoidance specialist"... she works on corporate restructurings and M&A etc.  Terrible news reporting on that one.

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24th Jul 2012 10:27

@Time for change

I did wonder if this was just some government plot to distract attention from the Jimmy Carr's, Vodaphone, and Barclays, etc., ie. the unwealthy avoid (evade?) just as much tax as the wealthy!

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24th Jul 2012 10:51

Expenses claims

Clearly it's going to be open season on DG's expenses.

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24th Jul 2012 10:52

In defence of David Gauke

I did not see the programme, but this is what the BBC News website says:

"Mr Gauke told BBC Two's Newsnight there was nothing wrong with paying in cash, but doing so actively to avoid tax was wrong."

I think that is an absolutely correct statement.  He must have taken advice from David Winch!

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24th Jul 2012 10:52

Not what I meant

I wasn't very clear when I said that tradesmen were obviously avoiding VAT and income tax/NIC.

This is usually combined with not providing an invoice.

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24th Jul 2012 10:53

"We're all in it together"

The government's favourite slogan popped into my head when I listened to David Gauke's Newsnight interview.

There are some interesting views and moral dilemmas expressed here, and some of the emotional heat takes me back to similar arguments in the past, many of them stirred up by tax campaigner Richard Murphy, who challenged the profession about its moral stance while facilitating legal avoidance.

Say what you like - and many members did at the time - Murphy has been successful (with help from UK Uncut and their like) at getting avoidance and evasion on to the political agenda. In the past month alone, Rebecca Benneyworth, Mark Lee, Philip Fisher, Michael Izza and our Accountant in Business blogger have all noted how the momentum on tax avoidance is nearing a tipping point.

The recent comments and posturing of government ministers is merely confirmation that we are going to have to get used to it. The point that struck me most here was Chesterfield Accountant's comment that we are witnessing the first, marketing phase of the government's strategy. But have they got the resources and commitment to follow through with implementation and development?

They're certainly providing a lot of material for debate for the summer. Why not have a look at the consultation document that triggered Gauke's comments and let us know what you think?

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24th Jul 2012 10:55

Morally Wrong

 

From the news today - this is 'morally wrong' to me, and don't get me started on the MPs expenses scandal:

"David Gauke has branded those who avoid tax as ‘morally’ questionable – but he is open to charges of hypocrisy.

In 2006/7, Mr Gauke used his parliamentary expenses to ensure that taxpayers bore the cost of his stamp duty payments when he moved house.

He claimed £10,248.32 in ‘mortgaged payments’ on his second home that year. That broke down as ‘Inland Revenue Stamp Duty’ of £8,550.

The rest was accumulated solicitors’ fees, land registry and property searches.

He was later cleared of any wrongdoing and has not had to pay any of the money back."

 

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24th Jul 2012 11:02

Back to the Maths lesson

The 20% off being the equivalent to the VAT back was even used by a large supermartket, let's call them Besco for the sake of argument, last year during a sale.

I did point this out to them at the time, not sure the lady at the till understood my point and escalatred it but i haven't seen it since.

 

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24th Jul 2012 11:06

Politicians...

... and morality have, throughout history, consistently made for poor bedfellows.  The bottom line is that the HM Treasury is skint and they want to seduce the masses (who won't actually want to pay more themselves) into getting other people to pay more tax. It's going to be an ongoing theme, that we''ll simply have to live with.

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By ringi
24th Jul 2012 11:09

When will the first accountant be expelled ....

When will the first accountant be expelled from their accounting body for aiding and abetting a trader to evade tax in this way?

I would say it was the professional duty of all accountants to report all such offer of a discount in return for cash and no invoice to the HMRC.

Now if the government entered everyone that sent in a copy of a trade’s person invoice into a lottery, and offered a reward for information on any trade person that did not provide an invoice….

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By blok
24th Jul 2012 11:41

.

ringi wrote:

When will the first accountant be expelled from their accounting body for aiding and abetting a trader to evade tax in this way?

I would say it was the professional duty of all accountants to report all such offer of a discount in return for cash and no invoice to the HMRC.

Really? 

What gives a person who happened to pass a few exams the right to police the nations tax take?  We don't work for HMRC.  Until there is a law against cash payments, it will remain my favoured method of payment because I seem to get better rates.

It is up to each individual person to pay the right amount of tax.  I know I do so (as an employee, I have no choice in the matter). 

Who am I to judge whether or not the recipient of cash is paying his fair share (unless I am his accountant of course).

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By ringi
25th Jul 2012 11:35

I think "no invoice" is key

It is possible that a tradesperson asking for payment in cash is not going to commit a crime, however if no invoice is provided, it is very likely a crime will be committed that there is a duty to report.

 

blok wrote:

ringi wrote:

When will the first accountant be expelled from their accounting body for aiding and abetting a trader to evade tax in this way?

I would say it was the professional duty of all accountants to report all such offer of a discount in return for cash and no invoice to the HMRC.

Really? 

What gives a person who happened to pass a few exams the right to police the nations tax take?  We don't work for HMRC.  Until there is a law against cash payments, it will remain my favoured method of payment because I seem to get better rates.

It is up to each individual person to pay the right amount of tax.  I know I do so (as an employee, I have no choice in the matter). 

Who am I to judge whether or not the recipient of cash is paying his fair share (unless I am his accountant of course).

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24th Jul 2012 11:10

Besco

They do a great price on beabags... and bomatoes...

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24th Jul 2012 11:13

The onus is on the recipient not the payer

My thoughts on this, from last time this nonsense cropped-up are here (to save retyping it all again)

On cash payments to tradesmen: http://www.adrianpearson.com/blog/2012/1/27/shame-on-you-again-dave.html [HMRC cannot brand all cash recipients as tax evaders]

On the reason for a "cash economy" http://www.adrianpearson.com/blog/2012/1/30/why-there-is-a-cash-economy.html [78% tax rate anyone?]

If the Govt sorted out the fundamentals we would all be better off.

And by the way - all of those MPs who had to repay overpaid (stolen) expenses after date: did they pay any tax on beneficial loan interest?

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By Pelican
24th Jul 2012 11:25

As an HMRC employee once said to me.

 

If you pay a tradesman in cash. What he is likely to do with the money? Well he will probably go down the pub that night to spend it or go and buy a TV etc with the cash.

 

This isnt true for all tradesman but I reckon most of them spend the cash in pubs/shop etc.

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24th Jul 2012 12:36

added dimension

Pelican wrote:

As an HMRC employee once said to me.

 

If you pay a tradesman in cash. What he is likely to do with the money? Well he will probably go down the pub that night to spend it or go and buy a TV etc with the cash.

 

This isnt true for all tradesman but I reckon most of them spend the cash in pubs/shop etc.

For me this is a nice added dimension to this argument. So in a sense these people are propping up my local community by not paying national taxes that may or may not be beneficial to my local community, but instead they purchase from community pubs, shops and local stores, which in turn pay taxes towards the national and international community. Thus one could argue that I have benefitted indirectly from this by actually going into those local pubs myself and enjoying a nice cold refreshing pint of ale on a rare sunny Monday evening. If this type of thing did not happen then there is a chance that that local community pub/shop would not have as much sales and therefore may now be closed! Thus evading my enjoyment on a nice sunny Monday, and now hopefully Tuesday evening!

 

 

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24th Jul 2012 11:25

MP's trying to take the high

ground on morals - what a joke....

 

 

 

 

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24th Jul 2012 11:28

And Pelican....

I would agree.....at least with the cash it is likely to go into the local economy....

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24th Jul 2012 11:57

What is more morally wrong...

...paying the plumber in cash or a British PM naming just Jimmy Carr out of X members of the K2 scheme (many of whom may be in the higher echalons of the civil service/mates of the MPs, perchance?). 

If UK Gov want to talk morals, then surely the PM blew a ruddy great hole in the moral fibre of the country with that particular issue.

<rant on tax reform>

One way to deal with the whole shindig would be a far reaching tax reform.

Scrap IT and introduce national, regional and city sales taxes on everything with rates based on a luxury vs need sliding scale - Yachts 80%; Food 10%. The wealthy inevitably pay more and the grey economy shrinks quite a bit. You could probably lose Council Tax (not NNDR) to the city sales tax*. Obviously, benefits would need to be raised but you then issue electronic payment cards that work at all major shops but refuse payment for alcohol and fags. 

Now that would be morally much more fair as the scum on benefits who pay nowt but can afford fags and booze from cash in hand work can't avoid that.

* this might make a few councils actually work a bit harder on what they should be doing rather than deciding what colour pansies they want on the roundabouts next year

<rant off> 

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24th Jul 2012 12:12

@ the fish monger....

I have often wondered why benefits are paid in cash - especially now when there are any number of loyalty cards etc.....benefits could easliy be handed out in vouchers (to pay for what they are there for...clothers, food, and gas/electricity etc)...afterall it is suppose to be to help one in a crisis not bankroll their next new car.....

 

 

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By mrme89
24th Jul 2012 12:30

Dear old grandma gets her boiler replaced and pays in cash (from her state pension that was paid to her in cash from the post office). When was is dear old grandmas job to ensure the plumber declared the income?

 

Just another excuse for the goverment to try get us all to spy on each other.

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24th Jul 2012 13:22

Not a problem

mrme89 wrote:

Dear old grandma gets her boiler replaced and pays in cash (from her state pension that was paid to her in cash from the post office). When was is dear old grandmas job to ensure the plumber declared the income?

 

Just another excuse for the goverment to try get us all to spy on each other.

I think the problem is when a tradesman offers a large discount for cash payment with no invoice.

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24th Jul 2012 12:32

cash in hand

If the governemtn is serious about stopping cash payments then the government (and the banks) need to provide some easy free method of transferring funds that gives some guarantee of payment. At the moment, the only method of achieving this is through cash payments.

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24th Jul 2012 13:24

Faster payments

ShirleyM wrote:

If the governemtn is serious about stopping cash payments then the government (and the banks) need to provide some easy free method of transferring funds that gives some guarantee of payment. At the moment, the only method of achieving this is through cash payments.

What about faster payments. If a tradesman has their online banking app they can ask for payment immediately and see it in their account. It's not going to be the solution in all circumstances but it's pretty good.

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By Old Greying Accountant
24th Jul 2012 12:56

The biggest problem to me ...

... and is the one that needs addressing most urgently,

Paying tax at the moment is like trying to fill a bath with no plug in the plughole!

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24th Jul 2012 13:03

.

Old Greying Accountant wrote:

Paying tax at the moment is like trying to fill a bath with no plug in the plughole!

For me this is possibly the best quote of the day. I couldn't agree more.

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24th Jul 2012 13:06

Payment cards for benefits

The true free market economist would be appalled that the state should determine what products an individual should be able to buy.

If they want to spend it on ciggies, hard liquor, jubilee mugs, olympic tickets or whatever it's not for the state to say.

And in reality they get the "forbidden fruits" in other ways, discounting their voucher or card or swapping purchases at a fraction of the rate for cash.

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24th Jul 2012 13:28

so if you were selling a second hand car

in a private sale would you prefer cash?

(since a colleague was paid with a stolen bank draft in such a situation I know what I would prefer)

I have only once explicitly been offered the choice of this price with VAT and this without in cash. I have been asked to pay for items in cash where it was clear the person did not have access to debit/credit card facilities and did not want to risk a cheque. If I get a receipt then I don't see why I should be expected to assume they are evading tax. 

The other side of the coin is when you make a cheque out to a tradesman do you ask if it is his business bank account if he or she asks you to make it out to his or her own name? Just as likely that is going to end up somewhere where they think the taxman or their accountant won't spot it. 

 

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24th Jul 2012 13:29

Seems reasonable to me

"The true free market economist would be appalled that the state should determine what products an individual should be able to buy.

If they want to spend it on ciggies, hard liquor, jubilee mugs, olympic tickets or whatever it's not for the state to say."

Why shouldn't the state say if that's the reason why they are providing the funds?

"And in reality they get the "forbidden fruits" in other ways, discounting their voucher or card or swapping purchases at a fraction of the rate for cash."

If they don't need what the benefits are provided for then it's a perfect reason to stop benefits.

 

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24th Jul 2012 13:32

and another point on VAT and tradesmen

I have been asked more than once to pay 2 men working as a team separately because if one took the money and paid the other the first one's turnover would go over VAT threshold. 

This seems to be (from my experience) quite common and I don't see anything wrong with it.

 

 

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