In Greece, around 27% of the economy is what the authorities like to call “untaxed” and the rest of us call “black”. In Germany that number is 16% and in Britain it is thought to be around 12.5% – guessing the size of something that is illegal is obviously an imprecise science.
You might be surprised to think it is even that high, but run through your close friends in your head. Do they pay all the VAT on their home improvements? Do they take cash for freelance work? Do they rent out one house and live in another? Or do they perhaps have a little place in the sun that they let to holidaymakers? Or one that they sold sometime ago without paying capital gains tax in Britain?
The odds are almost everyone you know isn’t paying quite all they should. This isn’t always because they want to cheat the taxman (and the rest of us) out of our fair share. It’s also about confusion (I give you Vince Cable and his failure to register his freelance earnings for VAT) and more than anything else about admin-phobia: we know that working out our taxes is anightmare, so we bury our heads in the sand instead of declaring complicating factors.
However, if all this sounds familiar, it’s probably time to get a grip. Why? Because HM Revenue & Customs is on to you. Last month, says The Sunday Times, the high-net-worth team started to use “sophisticated data-mining techniques” to comb through publicly available information to produce a “hit list” of people who own property abroad and who either do not appear to be declaring the correct income and gains, or do not appear able to afford such a property. It will be looking at websites advertising homes for rent, at transfers from you to foreign accounts, and at transfers from foreign accounts to you, if you have had no previously declared source of foreign income.
If you’ve been declaring all rental income properly (you have to do this, even if you have already paid tax abroad), you should have little to worry about, although those who have houses they don’t rent out might find themselves in the irritating position of having to prove the fact. But if you haven’t, now might be a good time to come clean. If you do, says accountant Ronnie Ludwig in The Guardian, you should end up with a fine of only around 10% of the tax due. But if HMRC finds you, that will be more like 100%. That should be reason enough to kick-start you into action. But if you are still hesitating, you might also bear in mind that if you don’t pay your taxes someone else will have to make up the difference. And look where that got Greece.