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HMRC 'Call for Evidence' on cash sales

3rd Dec 2015
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HMRC are issuing a consultation into the use of cash in business, and its link with non-compliance. This is part of the Department’s targeting of tax evasion.

The condoc is fairly brief, and explains that ‘HMRC are conducting research into the role of cash in facilitating non-compliance.’ This certainly indicates some pre-judgment on their part. They comment that around half of all retail transactions are made in cash; and that provides an opportunity for evasion, through the deliberate under-statement of sales. Cash, of course, leaves no electronic or digital footprint, which makes it harder to trace.

Having said that the condoc does that, in comparison to electronic alternatives, cash does have some advantages for compliance work. (What do they mean by that?)

With a gradual reduction in the proportion of transactions paid in cash, HMRC see this as an ideal opportunity to ‘start exploring what this means for tax compliance.’ The condoc therefore invites evidence from respondents about the role of cash in relation to tax compliance.

The condoc makes some interesting comments about the ‘diversion’ of electronic receipts. Para 2.2 explains that HMRC receive data in sales made by debit and credit cards, and by other payment methods. This data has been used to target individual businesses that have failed to declare all their electronic sales.

Comment 1: an HMRC Officer suggested to me that some 10% of all businesses are deliberately non-compliant. And that will include suppression of cash sales. That indicates to me an over-aggressive stance; and I frequently see assessments raised where VAT Officers assumed, without evidence, that the taxpayer was non-compliant. The existing Internal Review and Appeals procedures then result in additional and irrecoverable costs for the taxpayer in arguing his case.

Comment 2: very many retail SMEs and charities rely on cash income. If the outcome of the condoc leads to a “cash = suspicious behaviour” conclusion, then that will have an adverse effect on those organisations.

The condoc is here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

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David Winch
By David Winch
03rd Dec 2015 21:44

Cash transactions
Of course some cash transactions are either (1) prohibited by law (eg scrap metal dealer buying metals for payment in cash) or (2) subject to extra regulation (eg sale of goods for payment in cash equivalent to €15,000 or more - high value payments under MLR 2007).

Also in some lines of business cash payment is the norm (eg prostitution, sale of controlled drugs & other illegal business activities). It may be considered that tax non-compliance is particularly common in such cases. Although I am aware of drug sales online & prostitutes taking payment by credit / debit card etc. Whether such businesses are included in the estimated 10% non-compliant I don't know.
David

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