High VAT Rate Leads to More Cash-in-hand Work

Cash in hand jobs are on the rise due to high VAT ratesThe 20% VAT rate is encouraging tradesmen to take more cash-in-hand jobs and putting small firms at a disadvantage, Checkatrade has warned.

The high rate is having a “disastrous” effect on the building trade, because firms paying VAT are effectively a fifth worse off than those which evaded the tax, according to Kevin Byrne, managing director of Checkatrade, which monitors businesses to help consumers avoid rogue traders.

“The [£73,000] threshold already makes it very difficult for businesses billing over the threshold to compete. And as the tax rises kick in, medium-sized businesses will increasingly find themselves at a disadvantage.”

Byrne added that the 20% tax was also prompting more customers to pay in cash, in order to avoid paying VAT.

According to the Federation of Master Builders (FMB), a recent survey found that 97% of its members had been asked to do a job for cash or knew someone who had.

Brian Berry, FMB director of external affairs, said the issue was a “big problem” for small firms in the construction sector.

“The higher VAT rate has acted as an incentive for homeowners to use builders operating in the informal economy. Any many are delaying home improvements due to rising costs.”

Berry added that the FMB wanted to see VAT reduced to 5% to discourage “cowboy builders” and support legitimate businesses.    

A spokesman for HM Revenue & Customs (HMRC) said the tax body was committed to stamping out cash-in-hand trade.

“Where serious and deliberate irregularities have occurred, we will seek tax payments going back more than 20 years.”

Earlier this year, HMRC launched a crackdown on cash-in-hand tradesmen, offering an amnesty on penalties for those guilty of not declaring taxable income.

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