HMRC has published research report 433, Understanding evasion by small and mid-sized businesses, which looks at what causes businesses to engage in tax evasion and whether they hold particular attitudes making them more likely to seek to evade tax. We are pleased to note that using an agent seemed to limit engagement in evasion by the majority.
The particular attitudes of business owners, which differentiate evading and non-evading businesses, are listed as:
The report goes on to link the five attitudinal variables summarised above with external influences, ie, social norms, media noise, market pressures and agent use, to determine four core types of evader:
The research was conducted with a relatively small number of businesses (40 small and 5 mid-sized), but did pick up some behaviours which will sound familiar. It is worth noting that the sample for this research was only businesses which were actually engaging in tax evasion, so although on reading the report, it appears that evasion must be rife because so many examples are given, they are not statistically representative of the sector.
The sort of evasion reported ranged from the obvious, so businesses which dealt with cash paying customers had more opportunity to under-declare income, to those employing their teenage school children who were not really working, but whose personal allowances could be used to ‘save’ tax. There were those business owners who over-claimed personal (but related) expenses which could feasibly have been actual business expenses, and also those who bought new assets for their business (eg a computer), but who then used these at home and took the old home one for business use.
Clearly these will all mount up in terms of lost tax to the economy, but quite how much it contributes to the £5.2bn tax gap estimated to attribute to this sector by HMRC, it is difficult to conclude from this research.