Taxi Drivers And B&B Owners Are Worst Tax Evaders

If you pay your taxes in full and on time, you will be horrified to know that one in five taxpayers deliberately lie about how much they earn.

New research points the finger at the type of person most likely to evade their taxes.

More than a fifth of taxpayers ‘under report’ their taxes – which adds up to around 2 million people.

This rises to almost two out of three of the self-employed.

Most under payments are less than £1,000, says a report from think tank the Institute of Fiscal Studies (IFS) but a few taxpayers (4%) owe £10,000 or more.

The study profiles tax evaders and reveals they are not always who you might think they are.

More men lie about tax than women

The proportion of people evading tax does not change with how much they earn – just the amount they fiddle alters.

Helen Miller, associate director at the IFS, said “This research fills in some of the details about where revenues are lost. Most revenue is lost to a relatively small proportion of people who evade large amounts of tax. Evasion is highest for the types of income which are easiest to under-report.”

Men (40%) are almost twice as likely to evade tax than women (27%) but both under report their taxable incomes by 32%, the report found.

More than half of those in the construction, hospitality and transport industries evade tax. In the hospitality and transport sectors, tax is under-reported by half. The worst offenders run bed-and-breakfasts or drive taxis.

Tax inquiries raise an average £830 in year one and £1,230 over the next five years because the perpetrators fear getting caught again.

Why tax investigations work

But, says the IFS, if audits were aimed at the top earning 20%, the yield would rise to £10,260 over five years.

The figures do not include taxpayers making genuine errors on their tax returns.

Study author Arun Advani said: “Between errors and deliberate under-reporting, a significant share of self-assessment tax goes unpaid. Audits bring in tax directly, but also change taxpayer behaviour.

“Audits work not because they scare people into complying in future years, but because they give HMRC more information about people’s incomes. The change in behaviour brings in more than the original audit.

“HMRC have got better at targeting their audits and spotting under-reporting. But, this didn’t translate into more revenue from audits because they did fewer of them.”

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