MPs attack 'cash-in-hand culture'

Two million people may be avoiding paying tax, MPs say

A "cash-in-hand culture" could be costing the government more than £2bn a year in lost taxes, MPs have said.

The Commons public accounts committee estimated only 1.5% of non-payers were being caught, adding that many of the penalties imposed were "trifling".

Among those likeliest to avoid tax costs were internet traders, buy-to-let landlords and self-employed tradesmen.

But the government said it was committed to ensuring everyone contributed their "fair share".

'Hidden economy'

The committee called on HM Revenue and Customs (HMRC) to do more to publicise the "potentially serious" consequences of tax evasion.

It found there were no reliable estimates of money lost through the "hidden economy" but said it could be more than £2bn a year and involve about two million people.

HMRC is apparently making little ground in its efforts to diminish the cash-in-hand culture Edward Leigh MP

HMRC spent £41m in 2006/07 on encouraging people to pay taxes, detecting non-payers and imposing penalties on them, the committee said.

It found that, since 2003-04, officials had uncovered some 30,000 hidden economy cases a year - a detection rate of about 1.5%.

The committee's chairman, Conservative MP Edward Leigh, said: "HMRC is apparently making little ground in its efforts to diminish the cash-in-hand culture operating in the UK.

"HMRC has no solid estimate of the level of losses but it might be over £2bn a year. With a detection rate of only 1.5%, the chances of being caught are very slight.

"For those who are caught, the penalties imposed are usually relatively trifling - on average only 3% of the tax detected. And in very few cases - just two out of 1,000 - is a prosecution launched."

'Persuasion'

The HMRC had had some success at motivating people with offshore accounts to voluntarily pay the tax they owed, the committee said.

It should devise similar schemes to persuade those in other risk areas, such as self-employed builders and buy-to-let landlords, it added.

An HMRC spokesman said: "Those who persist in operating outside the formal economy face civil penalties - up to 100% of the tax evaded - and, for the most serious offenders, a criminal conviction.

"HMRC is committed to deterring and challenging those who do not pay their fair share.

"As the National Audit Office said earlier this year, the department is detecting more unpaid tax through new ways of working - such as the Offshore Disclosure Facility, which has already brought in over £400m in unpaid tax."