From my experience, one of the big benefits of owning a small business is that you get to run a lot of your personal expenses through the business & knock down your taxable income. Never buy paper towels on your own dime again, for one example. Of course, you’ve got to be a bit careful, they do notice if the numbers stick out too much.
Norman
@Esteban
Exactly right. If you’re going to take on all the risks of value creation rather than outsourcing them to an employer you want something back in return. Working for the benefit of HMRC is rarely your main motivation when doing this.
M
How much of that “evasion” is due to the enormous amounts of tracking required for compliance?
A complicated tax regime favors large corporations that can absorb those costs.
If you’re doing something that requires tracking once a month, you have to do it yourself, but if it’s a dozen times a day you get someone who does it full time and is actually good at it.
For that matter, the large corporation can and will lobby to make the matter more complex, since that reduces competition from below.
philip
80% of tax evasion? How do they know?
Is that 80% of prosecutions, 80% of tax recovered, 80% of suspected evasion, or (most likely) a number pulled out of a taxman’s arse.
Zaichik
How does this align with the ‘facts’ touted in the Guardian that the super rich are evading vast sums by hiding trillions in secret off shore bank accounts?
FrankH
Is that 80% of the number of cases or 80% of the number of £s. I suspect it’s the number of cases. If so, and if 80% of firms are classed as small firms then there isn’t really a story here, is there? But I suppose “Small Firms Tax Evasion Rate Is Just The Same As Large Firms” isn’t much of a headline.
Mr Womby
I know of a small company who were inspected by HMRC and fined because they paid the window cleaner out of the petty cash instead of putting it through the books.
Noel C
It’s a meaningless figure unless we know what proportion are cases like a baker not understanding the complex VAT treatment of sausage rolls.
Dennis, CPA to the Gods
This is not big news. Nor is it news of the newest sort.
We accountants of the septic variety tend to go with the 1 in 4 rule: $1 of every $4 that a small business earns goes unreported. Been going on since time immemorial.
john77
@ FrankH
More than 80% of businesses are small – as 4.27 million people are self-employed there are 1.4million companies with less than 50 employees and only 45k with more than 50 employees.
That looks like 99% of businesses being small (even if you exclude companies owned by other companies from the 1.4 million).
john77
@ Dennis
A lot of historians explain the creation of writing as being to facilitate collection of taxes which means it’s presumably being going on five times as long.
When I was self-employed every £ went through the books but I am regarded as a bit weird
Dennis, Inconveniently Noting Reality
When I was self-employed every £ went through the books but I am regarded as a bit weird
If I get convicted of tax evasion, I lose my license to practice. Not worth it. Where I in a different line of work, well, I’ll take the Fifth on what I’d do.
jgh
I was doing my tax return a few weeks ago, and discovered a note to myself I’d made a few years ago: “list window cleaner in outgoings”. I’ve never done so, and the note must be years old as the window cleaner shut up shop due to Covid.
Theophrastus
Mr Womby
I pay a window cleaner out of petty cash but always get a receipt. Why wouldn’t you get a receipt, when window cleaning is an allowable business expense?
Mr Womby
@Theo
I believe there were receipts, but my understanding is that they should have paid against a VAT invoice. (I don’t have the exact details.)
Sam Jones
The other side of this (which Murphy and the TJN never mention) is that many of these small businesses not declaring income for tax purposes are similarly not declaring it for tax credits/universal credit. A lot of small businesses report £10k or so of income for both income tax and tax credits/universal credit and pocket the rest in cash.
From my experience, one of the big benefits of owning a small business is that you get to run a lot of your personal expenses through the business & knock down your taxable income. Never buy paper towels on your own dime again, for one example. Of course, you’ve got to be a bit careful, they do notice if the numbers stick out too much.
@Esteban
Exactly right. If you’re going to take on all the risks of value creation rather than outsourcing them to an employer you want something back in return. Working for the benefit of HMRC is rarely your main motivation when doing this.
How much of that “evasion” is due to the enormous amounts of tracking required for compliance?
A complicated tax regime favors large corporations that can absorb those costs.
If you’re doing something that requires tracking once a month, you have to do it yourself, but if it’s a dozen times a day you get someone who does it full time and is actually good at it.
For that matter, the large corporation can and will lobby to make the matter more complex, since that reduces competition from below.
80% of tax evasion? How do they know?
Is that 80% of prosecutions, 80% of tax recovered, 80% of suspected evasion, or (most likely) a number pulled out of a taxman’s arse.
How does this align with the ‘facts’ touted in the Guardian that the super rich are evading vast sums by hiding trillions in secret off shore bank accounts?
Is that 80% of the number of cases or 80% of the number of £s. I suspect it’s the number of cases. If so, and if 80% of firms are classed as small firms then there isn’t really a story here, is there? But I suppose “Small Firms Tax Evasion Rate Is Just The Same As Large Firms” isn’t much of a headline.
I know of a small company who were inspected by HMRC and fined because they paid the window cleaner out of the petty cash instead of putting it through the books.
It’s a meaningless figure unless we know what proportion are cases like a baker not understanding the complex VAT treatment of sausage rolls.
This is not big news. Nor is it news of the newest sort.
We accountants of the septic variety tend to go with the 1 in 4 rule: $1 of every $4 that a small business earns goes unreported. Been going on since time immemorial.
@ FrankH
More than 80% of businesses are small – as 4.27 million people are self-employed there are 1.4million companies with less than 50 employees and only 45k with more than 50 employees.
That looks like 99% of businesses being small (even if you exclude companies owned by other companies from the 1.4 million).
@ Dennis
A lot of historians explain the creation of writing as being to facilitate collection of taxes which means it’s presumably being going on five times as long.
When I was self-employed every £ went through the books but I am regarded as a bit weird
When I was self-employed every £ went through the books but I am regarded as a bit weird
If I get convicted of tax evasion, I lose my license to practice. Not worth it. Where I in a different line of work, well, I’ll take the Fifth on what I’d do.
I was doing my tax return a few weeks ago, and discovered a note to myself I’d made a few years ago: “list window cleaner in outgoings”. I’ve never done so, and the note must be years old as the window cleaner shut up shop due to Covid.
Mr Womby
I pay a window cleaner out of petty cash but always get a receipt. Why wouldn’t you get a receipt, when window cleaning is an allowable business expense?
@Theo
I believe there were receipts, but my understanding is that they should have paid against a VAT invoice. (I don’t have the exact details.)
The other side of this (which Murphy and the TJN never mention) is that many of these small businesses not declaring income for tax purposes are similarly not declaring it for tax credits/universal credit. A lot of small businesses report £10k or so of income for both income tax and tax credits/universal credit and pocket the rest in cash.