ICAS response: Cash, tax evasion and the hidden economy
How important is cash to the hidden economy? ICAS responds to a HMRC consultation.
At March 2015, there were around 3.4 million Bank of England notes in circulation, worth around £62.6 billion. In addition there was another £4.2 billion in coins issued by HM Treasury and about £6.6 billion in notes issued by Scottish and Northern Irish banks.
The Bank of England estimates that only around half of its notes are used in the visible domestic economy. Some cash is held overseas, but this leaves a substantial amount of cash which could be used in the shadow economy.
The hidden economy
As payment methods shift towards the digital and electronic, HMRC wants to know what impact this is likely to have for tax evasion and its detection. Will there be any significant fall in the use of cash?
By its very nature, the hidden economy does not maintain a high profile, but HMRC’s bulk data collection powers and Connect software may identify a digital footprint which suggests undeclared business activity.
The call for evidence
HMRC seeks information on the impact of cash, digital spending and ‘disruptive payment technologies’ on the hidden economy. In its response, ICAS highlights the anecdotal nature of the evidence while calling for adequate investment in specialist staff.
"The hidden economy is criminal activity and detective work is needed to identify and prosecute offenders. No amount of Information technology can replace the need for trained staff and detailed compliance work."
There is a need to keep in mind the well-tested approach of making 'lifestyle comparison' which compares the resources needed to sustain an individual’s lifestyle and wealth, with their income as declared for tax purposes.