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HMRC takes aim at internet tax dodgers

Internet traders are among the two million people believed to be cheating on their taxes in the booming cash-based black economy.

Internet traders are among the two million people believed to be cheating on their taxes in the booming cash-based black economy.

The Public Account Committee (PAC) said today it regarded individual internet traders, some self-employed people, such as taxi drivers, hairdressers, builders and decorators, and buy-to-let landlords, as "at risk".

PAC chairman Edward Leigh said HM Revenue & Customs (HMRC) was apparently making little ground in fighting the UK's cash-in-hand culture, which it estimates costs the country more than £2bn a year in lost taxes.

"With a detection rate of only 1.5%, the chances of being caught are very slight," Leigh said. For those who are caught, the penalties imposed average only 3% of the tax detected. HMRC prosecutes only two cases out of a thousand, he said.

HMRC said it was using more data matching to detect suspicious discrepancies between the data it held on people and other data sources, such as the Yellow Pages and Driver & Vehicle Licensing Authority.

It also said an advertising campaign to encourage people to blow the whistle on tax cheats had misfired. Most of the information received had been on individual "ghosts" and "moonlighters", where the tax at stake was less than it would have been for employers and small businesses. As a result, HMRC collected only £2.6m of an expected £32.5m.

HMRC spent £41m in 2006-07 to get people and businesses into the formal economy, and detecting and imposing sanctions on those operating in the hidden economy. It uncovered unpaid taxes worth £145m in that time.

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