BURGON'S BLOG: Who's to blame for cash-in-hand payments?

Published:  30 July, 2012

As government minister David Gauke attacks plumbers who accept cash payments from customers in order to avoid paying tax, SNIPEF chief executive officer Robert Burgon asks who is really to blame.

Treasury Minister David Gauke has launched an attack on the practice of paying plumbers in cash. His comments, widely reported on TV and in the press, suggested that cash payments were "morally wrong" and resulted in significant loss of tax revenue for the Treasury.

Coming just days after a self-employed plumber was jailed for tax evasion, this has once again drawn negative attention to our industry. Plumbers are all too easy targets for such problems. It is just as likely that similar problems arise in relation to almost every other supply of services - not just those which are construction-related.

No one can condone the practice adopted by some businesses (and by no means just plumbers) of offering discounts for payment by cash. Whether it is stated or not, such discounts are often provided in return for the non-declaration of the work for VAT and/or income tax purposes. In this respect, the Minister is correct in highlighting a problem. However, the focus of his attention might be better served on the real culprits.

It is not only traders who are at fault. The government’s decision to apply a VAT rate of 20% to all work, and its refusal to apply lower rates to repair and maintenance work, is a factor. A difference of 20% in the price charged by a contractor applying VAT and one who either is not required to charge VAT (because of the high registration threshold) or one who chooses not to, is significant.

A huge part of the problem would be addressed if government were only to do what other European governments have already done, by agreeing to reduce VAT rates for a broader range of work carried out in construction – such as repairs and maintenance.

What about the customers who actively encourage tax avoidance? Plumbing firms regularly receive requests from customers for discounts for payment by cash. There is nothing illegal about customers paying their bills in cash, but it is a different matter when such payment is intended to create tax avoidance. Should that practice not also be highlighted, rather than always focusing attention on unscrupulous contractors?

Perhaps there should be a whistle-blowing mechanism for contractors to use to report customers making such requests. Maybe customers who practice the encouragement of tax avoidance should also be subject to penalties.

It may have been one of those silly summer season stories, when 'real' news is hard to find. However, it would be good if the government recognised that the blame for their loss of taxation revenue needs to be aimed wider than at just contractors.