There is no such thing as a free lunch - Milton Friedman
It won’t come as a surprise to anyone to hear that during an economic downturn there tends to be a greater level of activity in the shadow economy. The shadow economy, otherwise referred to as “The Black Market” or “Cash in Hand Work”, has been defined as “the part of an economy involving goods and services which are paid for in cash, and therefore not declared for tax”. In simple terms it refers to the under reporting of sales and profits and the business activity taking place outside the taxation system.
The reasons are fairly straight forward - we are all feeling “the pinch” at the moment, and some have decided to try to increase their cash flow by avoiding the extra burden of taxation. A tempting prospect for anyone but is it legal? Certainly not! Is this smart? Well, that would depend on who you are asking. Having seen the results and the impact on those that have been caught, we would have to say definitely not!
So what is Revenue doing to catch these people? How great a risk is a person / business running by underreporting or not reporting income? Revenue is working with the Department of Social Protection, the National Employment Rights Authority and the Gardaí. They have visited businesses, single-house construction sites, market places and more.
Revenue is performing audits on a random basis. Each year they conduct an average of 400 audits. In around 32% of these cases Revenue generate an additional yield. Of these 32%, the average amount yielded was between €15,200 and €22,200.
Revenue is continuously evolving and improving its methods for clamping down on the shadow economy. And as the recession continues and countries across the world discuss the impact of the shadow economy on recovery, it is likely that there will be more pressure on Revenue to clamp down even further and actively target certain areas within the shadow economy. Every cent of tax Revenue counts and therefore taxpayer compliance will be an area of increased focus. The short and simple message is, don’t run the risk! Seek advice today in order to ensure that your tax affairs are in order.
Need help and don’t know where to go? Check out our Irish Tax Service!