According to latest HMRC figures, it is estimated that some £5bn of tax is lost to the Treasury every year due to the “Hidden Economy”.

The “Hidden Economy” is a term used to describe “ghosts” or “moonlighters”. The former are people who are earning money but are unknown to HMRC and the latter are known to HMRC but are doing additional work which they do not declare to HMRC.

Ghosts and moonlighters cover a very wide range of activities. HMRC is devoting a lot of resources in terms of both IT and personnel into tracking these individuals and taxing them on their previously undeclared income. They are taking this extremely seriously and in one recent well publicised case, a lady who was found to be active in the “Hidden Economy” was told to either pay £62k to HMRC in respect of earlier years tax liabilities or face a spell in prison. In the past, £62k would have been way too small an amount for HMRC to consider prosecution but HMRC is now determined to severely penalise those who deliberately set out to avoid paying tax on their income.

I had thought that moonlighters were in decline, but my sister is currently in the process of moving house and the removal firm whom she has engaged with have quoted a fee of £1100 which must all be paid in cash!

In addition, she needs some immediate work done to the house which she is buying and the individual whom has agreed to do the work has quoted a fee of £380, which again, must be paid in cash!

The most common moonlighters are tradesmen – for example, electricians, plumbers, IT specialists, telephone engineers who may work under the PAYE system but undertake work outside of their normal employment for cash.

HMRC is well aware of the various sectors most commonly involved in moonlighting and are very active in gathering information on individuals involved as a prelude to raising an enquiry.

HMRC has a very impressive IT system which is used to process a vast amount of information which can lead them to moonlighters or ghosts. Adverts in newspapers or local shop windows are scrutinised by HMRC, van registration numbers can be checked to see who owns them and ascertain whether the owner is registered with HMRC as a business. Internet traders are accessed and monitored to see whether their activity constitutes a business.

HMRC officers may take a professional interest in, for example a regular car boot sale. Some individuals will for example buy liquidation stock and sell it at a car boot sale, or buy cheap alcohol in France and sell it out of the back of their car. Such cases clearly go well beyond the casual selling of unwanted household or personal items and HMRC will pursue anyone whose activities bear the hallmarks of a bona fide business.

Car sales or repairs from a private driveway attract HMRC’s attention and often a disgruntled neighbour will report this activity to HMRC.

The days when there was a reasonable chance of escaping HMRC’s attention are long gone. Anyone deciding to be part of the “Hidden Economy” is now taking a considerable risk with heavy financial penalties awaiting them, not to mention the possibility of prosecution and a custodial sentence. I have seen cases where tradesmen have quoted cash to do a job and the customer has actually been an HMRC employee who did of course report the transaction and was the star witness against the tradesman!

The financial penalties which will be charged can amount to 70% or more in the most serious cases but these can be significantly reduced if an individual decides to wipe the slate clean and make a voluntary and unprompted disclosure to HMRC.

Anyone who wishes to consider making a disclosure should contact us for further information and guidance.

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