Finance Articles

Is Fraud a Reason Why We Pay So Much Tax?

The problem of fraud is massive globally. It is a hidden crime and the true extent is not fully understood. Reports put the level of fraud in the UK at differing levels as a result.

Looking at only tax fraud the estimated levels are unlikely to be correct. In the UK a report in 2010 by the National Fraud Authority puts the level of tax fraud alone at £15.2 billion. This is around 2.7 percent of the overall tax revenue collected in the UK.

This is unlikely to fully take into account the systematic evasion of tax by the black economy. Consider the hundreds of thousands of small businesses that deal in cash and under declare their earnings. If you do not think that this is the case then go into any small shop in the high street that is not part of a retail chain. A corner shop or news vendor will do. When you pay the vendor for your coffee or chewing gum, keep an eye out on how he puts the money away. Each sale properly rung into the register resulting in a till roll record will be matched by another that is simply placed into an open cash tray. Consider the times that a tradesman has offered a cash discount. Why would he do this unless attracted to the fact that cash leaves no audit trail?

Another example of tax evasion is the use by small businesses of self employed staff. For example there are many marketing businesses set up to promote advertisements in various publications, on web sites and on bill boards. A number of telephone sales persons will be used by them and these will be paid on a commission only basis. They are responsible for their own tax. Frequently these workers do not declare their earnings and some even claim benefits as well.

The proprietors of these activities ignore the practices going on and often exploit them for their own benefit. By putting down a false name or two on the sales list they can draw extra money out of the business apparently as a legitimate cost to pay sales workers but actually take the money tax-free themselves. This problem was prevalent in the building industry until the Revenue introduced legislation preventing sub contractors from being paid gross unless they were properly registered. However, the practice still exists in many other areas.

The UK along with most other countries has a tax evasion problem. If the amount evaded is much more than 3 percent as this article suggests then it is true that we are all paying much more tax than we should.


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