CASH-IN-HAND

I hate to agree with a Treasury Minister. It’s not my job to support the Government, whatever its politics. My job is to hold Ministers to account and point out the flaws in what they say – a job I have relished for more than 25 years. So when Treasury Minister David Gauke said on 23 July that it was “morally wrong” to pay your plumber or decorator cash-in-hand in return for a discount I confess I was in a dilemma. Because I think he is right.

And I go further. If you do a deal with a tradesperson to pay cash in exchange for a lower price to ‘avoid the VAT’ – as someone once said to me – then you are in a conspiracy to evade tax. You are both breaking the law.

So at its simplest I agree with David Gauke. We should not pay cash if we know, think, or suspect that the purpose of paying by cash rather than by cheque or card is to keep the transaction off the books and away from any possible investigation by HMRC.

But of course the world is more complicated than that.

Cash can be good

Most cash payments are not about tax dodging.

A small trader with a big overdraft may prefer cash to cheque so that the money does not have to go through the banking system. It also helps cash flow – this morning’s cash payment may be used to buy supplies this afternoon for the next job.

Cash is also certain. Since the banks decided to scrap the cheque guarantee card in June 2011 any cheque can bounce which means a lot of hassle and expense trying to recover the money.

And cash is cheaper. Most banks charge for each cheque paid into a business account. And every time a debit or credit card is used it costs the trader money. Not just the fee or percentage the card issuer takes but also the cost of renting the machine to take the payments.

Some people deal with cash for the simple reason that their business is so small they do not have any taxable income – like handyman Chris on the Radio Wales phone-in today who earned less than £8000 a year.

And it would be ridiculous to pay small amounts by card or cheque.

So there are a lot of reasons to prefer cash. But of course those reasons do include the disreputable one – unlike other means of payment cash does not leave an audit trail. So it is clearly the payment method of choice for those who do want to evade tax.

Cash can be bad

I am sure everyone with a home or a car has asked the cost of a job and been told one price and then a lower one ‘for cash’. That is the moment when you must suspect that evading tax is on the agenda. If the discount is 5% then it may simply be because of those other advantages of having cash rather than a payment that is more expensive, less certain, and takes more time to process. But a much bigger discount means it is probably an attempt to involve you in a conspiracy to keep the payment off the books and hidden from HM Revenue & Customs. 

Of course, tax fraud is often initiated by customers. Paul, a carpet cleaner, called the Tony Livesey show on Radio 5 Live last night to say that he charged £95 to clean a carpet. To which many householders replied  ‘what will you take for cash?’ 

So David Gauke’s attack is on the middle-class homeowner as much as the tradespeople they pay. In the short-term, of course, you both benefit personally from such as deal – the job costs you less and the trader pays no tax. That is why it is a conspiracy to defraud!

But ultimately if you do pay cash-in-hand – and even as you say it you can feel the conspiratorial wink which accompanies that phrase – everyone loses. It is the slippery slope that led to the economic woes of Greece where tax is seen as a voluntary activity – a view supported in the past by a corrupt revenue collection service.

Bigger tax dodges

But hang on, I can hear you say. What about the real tax dodgers. The richest people in the world who, the Tax Justice Network estimates, have salted away £13 trillion in tax havens many of which are British Overseas Territories or Crown Dependencies. What about the £35 billion in UK tax which is evaded or uncollected each year? That figure from HM Revenue & Customs itself. What about the cunning plans operated by accountancy and law firms big and small, often called ‘tax planning’ or ‘tax mitigation’, which allow people and businesses to wriggle through gaps in the law to emerge tax-free on the other side thumbing their nose at the rest of us and singing ‘nah nah ni nah nah’!

And hang on again, you add. Rather than lecture us about this small-time tax dodging the Government  should be tackling the major tax evoidance (as I call it) of the people who think they are too rich or too clever or too famous to pay tax like the rest of us. Only then will people on modest income struggling to make a living or to pay for essential repairs feel it is right to pay the full whack – and their taxes. Fairness goes both ways.

All that is true. But that still does not justify entering into a conspiracy to help the local gardener or decorator or mechanic evade the tax due on their modest income.

Size of the problem

Paying traders in cash is not the biggest source of tax loss to the Government. HMRC says the ‘hidden economy’ costs about £4 billion a year out of the £35 billion total ‘tax gap’. In 2008 the parliamentary Public Accounts Committee estimated that up to two million people were engaged in taking cash-in-hand to reduce their tax bill at a cost to the Revenue of £2 billion a year. All these estimates are highly speculative. And whatever the true figure it is going to be a tiny percentage of the estimated income tax receipts in 2012/13 of £155 billion and an even smaller proportion of the total tax take of £592 billion. It is certainly not the worst wrong in tax dodging. But it is still wrong. And there is no excuse for joining in. 

It is our business

Of course it is the trader’s job to keep the books accurately, report their earnings in full and pay the correct tax. And it is not our job to ensure they do that. But if you saw a mugging the street or a burglar emerging from a window carrying a computer it would not be your job to deal with that either. But shouldn’t you do something? If only shout and call the police?

So when you pay a trader in cash always ask for a receipt. Ideally, it should be from a proper receipt book with a place of business stated clearly on it. For any large amounts get an invoice – it protects you if something goes wrong. If the bill includes VAT check that the firm is registered. And never ever ask for or agree to a big discount for cash.

It won’t stop tax dodging. But you at least will have occupied a nice square of solid moral ground from which you can demand that the wealthy pay their fair share too. 

Sources

·         Tax Justice Network www.taxjustice.net

·         HMRC Measuring Tax Gaps 2011 www.hmrc.gov.uk/stats/mtg-2011.pdf

·         Public Accounts Committee Tackling the Hidden Economy December 2008 www.publications.parliament.uk/pa/cm200708/cmselect/cmpubacc/712/712.pdf

·         Report tax fraud to HMRC www.hmrc.gov.uk/reportingfraud/help.htm

·         Check if a VAT number is correct ec.europa.eu/taxation_customs/vies

One-on-One with Mitt Romney

Mitt Romney unveils his 5-point recovery plan: energy, trade, balanced budget, education, and economic freedom to keep taxes and regulations low.

He also blasts Obama for “you didn’t build that” and contrasts that with his own free enterprise reward success philosophy.

One-on-One with Treasury Secretary Timothy Geithner

PAYING FOR CARE – DEJA VU VU VU

A Government comes to power. It commissions a report into how we pay for the growing cost of care for an ageing population. In July, just before Parliament disappears for the summer and more than a year after the report was published, the Government responds. It says it will improve the means-test which assesses what help people get with the cost – including raising the upper capital limit above which no help is given. And it promises a loan scheme to ensure that no-one would be forced to sell their home to pay for care.

Yes, it is 27 July 2000 and the last Labour Government publishes its response to the Royal Commission on Long Term Care which it commissioned in 1998.

The more I read that twelve year old document the more astonished I am at how similar it is to the recent Coalition Government response to the Dilnot report on long term care which it commissioned shortly after coming to power in 2010. In 2000 there are plans to improve the lot of carers, set common principles for assessments for care needs in different parts of the country, and provide for individually tailored care packages. And of course the announcement of a national scheme to let people pay the cost of their care after death from the proceeds of their home. It began in 2001. 

2012

Roll forward a dozen years and the same plans are rediscovered. Not least the ‘announcement’ on 11 July 2012 of, ahem, a national scheme to let people pay the cost of their care after death from the proceeds of their home. It was an astonishing triumph of PR over substance. And the bait was duly taken up by all media outlets – from the Daily Express to Radio 4’s Today programme – repeating as if it was a fact that 40,000 people a year would no longer be forced to sell their home to pay for their care.

In fact no-one – I repeat NO-ONE, again NO-ONE– can be forced to sell their home to pay for their care. The figure of 40,000 is more than double the actual number who do sell their homes to pay care home fees. Some of the 19,000 who do are deceived into it by cash-strapped local councils who wrongly tell them they must, aided and abetted by false headlines in the press. But some choose to use the value of their home to pay for better care than the local council will give them. And why not?

The scheme introduced by the last Government in October 2001 was “to ensure that people… are not forced to sell their homes as soon as they enter residential care.” It would “help…people who do not want to have to sell their homes in their lifetimes to pay for their care by making loans more widely available”.

Over the years the scheme became compulsory. In 2009 the Department of Health issued a circular LAC (DH)(2009)3 which said Ministers expected councils to offer deferred payment schemes and “it is the Department’s view that if a local authority were to have a policy of never exercising its discretionary powers to make deferrals, it is likely the courts would find this to be unlawful.”

We know that 8,500 people are currently in such schemes with a total debt of £197 million – an average of £23,000 each. Lawyer Lisa Martin of Hugh James confirms that in her long experience anyone who asks for a deferred payments scheme – and insists they have a right to it – will get one. But even if they don’t all they have to do is refuse to pay. The local council still has to provide care and can let the bill clock up and take a charge against an empty home so it is paid after death. That power was given nearly thirty years ago in s.22 of the Health and Social Services and Social Security Adjudications Act 1983 (HASSASSA).

In either case no interest is charged on the debt while the resident is in care and that concession lasts for an extra 56 days with a formal deferred payment scheme.

So the Universal Deferred Payment Scheme – carefully pre-announced on 11 July before the detailed documents were published – was not new at all. Even the wording was familiar

2000: “to ensure that people… are not forced to sell their homes...in their lifetimes.”

2012 “so that no-one is forced to sell their home in their lifetime to pay for care”

The only new thing – kept carefully under wraps in those morning tours of the broadcasting studios – is that it will actually cost the heirs more than the present scheme because interest is charged on the debt from the start. That could add a few thousand pounds to the amount taken from the estate when the scheme starts in April 2015. And buried in the 150 page draft Care and Support Bill is the planned repeal of s.22 of HASSASSA to make sure there is no way out.

CAP ON IT

The other key change announced in principle in July 2012 was the cap on the cost of care. But that was a deception too. The Dilnot Commission on Funding of Care and Support proposed that the cost of care be capped. He suggested that a lifetime cap of around £35,000 would be ‘fair’. But that cap was only on the care element of the costs – the residential board and lodging charges of up to £10,000 a year would still have to be paid. And the cap is not an amount of money – it is the amount of care that £35,000 would buy at local council rates. The Government revealed in its Progress Report on Funding Reform (Figure 6) that it reckons £35,000 would buy 100 weeks of care. Someone paying £500 a week for that care would still have to buy 100 weeks-worth and spend £50,000 before the cap applied.

Figure 12 indicates that the Government has done costings right up to a cap of £100,000 which would mean paying for more than five year’s care before the cap kicked in. That would achieve its stated objective to “look at how reform consistent with the principles of the Commission’s model can be implemented, but at a lower cost to the public purse” (p23). In other words cheaper. But every penny that is spent will go mainly to wealthier groups as those with no resources get all their care paid for already. Even with a cap at £100,000 about half a billion pounds more a year would go to the richest fifth of the population (Figure 13). No wonder the Government gave no commitment about what the cap would be or when it might be introduced.

As the old joke about Freud goes, all that was true was not new and all that was new was not true.

NOTES

You can marvel at the July 2000 The NHS Plan: the Government’s response to the Royal Commission on Long Term Care.

www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/@dh/@en/documents/digitalasset/dh_4082154.pdfand read my summary of how the plans turned out in 2001 www.paullewis.co.uk/archive/saga/2001/000901.htm

The recycled plans are in the 2012 White Paper Caring for our future:

reforming care and support www.dh.gov.uk/health/files/2012/07/White-Paper-Caring-for-our-future-reforming-care-and-support-PDF-1580K.pdf and the finance details are in Caring for our future: progress report on funding reform

www.dh.gov.uk/health/files/2012/07/2900021-Progress-Report_Accessible-11.07.2012-v2.pdf

Statistics on current deferred payment schemes http://www.adass.org.uk/images/stories/Press12/ADASS_BudgetSurvey2012Summary.pdf

You can read how to get the NHS to pay for your care www.paullewis.co.uk/archive/saga/2012/20120601Works.htm

If the NHS won’t pay here is why you still do not have to sell your home to pay for care written by me in each of the last three decades

2010 www.paullewis.co.uk/archive/saga/2010/201005Works__Care_Home_Costs.htmincludes my fact check on the false 40,000 figure

2001 www.paullewis.co.uk/archive/saga/2001/000301.htm 

1994 www.paullewis.co.uk/archive/saga/19941101HoldOnToYourHome.pdf

HOW TO MOVE YOUR CURRENT ACCOUNT

A brief poll of my tweeps found the overwhelming majority of those who had moved their current account found it easy and trouble free. The ones who hadn’t moved were afraid it would be difficult. But almost no-one had encountered problems.

Step 1: Pick your new bank. Which really means decide why you're leaving the old one. Is it for moral reasons – you just don’t like the way banks behave. Or you're fed up after computer failures. Or you want better customer service or to be paid interest on your current account? And remember not only banks have current accounts. Five building societies do as well and so do 24 credit unions. See WHICH BANK below.

Step 2: Go to the website of your chosen bank (or building society or credit union) and apply for a current account. I say ‘apply for’ because you can choose your bank but it might not choose you. The bank (etc) might say no if you have an overdraft or a poor credit record. If so try another. If it happens again see BAD RISKS below.

Step 3: Your new bank (etc) will ask if you want to move your direct debits and standing orders to your new account. Say yes and that should happen automatically without a payment being missed. Print off a list yourself and check with your new bank. It can be a good time to check you know what they are all for and cancel those inactive direct debits.

Step 4: You will normally have to tell your employer or pension provider to pay your money into the new bank account. The same applies to any tax credits or benefits – tell HMRC and DWP. In fact tell everyone who is due to pay you money. Some banks will do this for you. If you have a debit card registered to pay at online sites remember to change those details too.

Step 5: Do not close your old account. Keep a balance in it to meet any payments that might not have changed. Check frequently that things have happened correctly. There may be the odd hiccup but they are soon put right if you keep your eye on things. The whole process should take less than a month or so. The official timetable - agreed by the Financial Services Authority so the banks must do it - is here  

http://www.thesmartwaytopay.co.uk/sitecollectiondocuments/account_switching_timeline.pdf. But note that when it refers to a number of 'days' that excludes weekends and public holidays.

Step 6: After a couple of months close your old account.

You’ve moved banks!

If you have a complaint about the moving process you should make it in writing to the bank. If it is not resolved within eight weeks go to the Financial Ombudsman Service www.financial-ombudsman.org.uk/consumer/complaints.htm. You can also call the Ombudsman office for advice.

WHICH BANK?

There are dozens of banks in the UK.

The five big banks are Lloyds/Halifax, Barclays, RBS/NatWest, Santander, HSBC/First Direct. They can offer the best deals and the fastest service. The way they treat customers can vary greatly. First Direct is usually top. You can find out the ones with most complaints here

www.fsa.gov.uk/library/other_publications/commentary/firm_spec

Some banks will pay you to open a current account. Some pay interest on the balance. Some want a minimum amount going in each month. Some will try to sell you an account you pay for each month but always resist as they are almost never worthwhile. Check the overdraft charges.

There are five smaller banks. None of them plays the markets with your money like the big five do. Co-operative is about to buy 632 branches from Lloyds and will then be the sixth biggest in terms of branches. It is a mutual and has an ethical policy about where it invests its (your) money. Smile is its online bank. Yorkshire Bank and Clydesdale Bank are both owned by National Bank of Australia. Handelsbanken is Swedish owned and has 115 branches in the UK. It prefers wealthier customers. Virgin Money now has 75 branches and will operate current accounts later this year. Metro Bank is mainly inside the M25 with a dozen or so branches but is growing rapidly and says it offers specially friendly service in its branches. More about four of these banks www.paullewis.co.uk/archive/saga/2012/20120301Works.htm.

Five building societies offer a current account. Nationwide is by far the biggest and the only one which is a ‘clearing bank’ – in other words it does not have to rely on one of the big five to process its accounts. With a total of 800 branches – including its subsidiaries Cheshire, Derbyshire, and Dunfermline – it is seventh in branch numbers after an expanded Co-operative. The other four societies with current accounts are Coventry, Leeds, Norwich & Peterborough, and Cumberland.

Building societies are mutual organisations which are owned by their customers. So there are no shareholders taking dividends out of the company. Their directors are paid far less than the directors of big banks. And they do not gamble money on international markets.

Twenty four credit unions offer current accounts. They may take longer to process payments but all should do payments by the next working day. They are generally small organisations with the advantages and disadvantages that brings. And there may not be one in your area. You can find a list here www.abcul.org/about/productsservices/cucaand find the credit unions that you can join here www.findyourcreditunion.co.uk. Credit unions are mutual organisations too.

In Northern Ireland there is Northern Bank which will soon take the name of its owner Danske Bank. First Trust Bank is owned by Allied Irish Bank AIB. Ulster Bank is part of RBS Group. And Bank of Ireland has many branches.

BAD RISKS

If a bank does not like you it does not have to do business with you. If you have an overdraft it is harder to move your current account. If your credit record is poor – and that can just mean you don’t have any credit cards or a mortgage or loan – then you may be rejected. Other things that give you a bad credit score are moving home frequently, not being an owner occupier, having late or missed payments on your record or court judgements for debt against you.

You can check your credit record at the three credit reference agencies. You have a right to a copy for just £2. You can get those here

http://experian.co.uk/consumer/statutory-report.html

www.equifax.co.uk/Products/credit/statutory-report.html

www.callcredit.co.uk/stat-report-online/

If there is an error on your record the agencies must correct it. If you have a poor record but there was a good reason for it or there is a dispute over a payment, you can add a ‘notice of correction’ which has to be read by anyone using the record.

The credit reference agencies will all try to tempt you to pay them every month for regular reports, credit scores and other extras. There is no need to do that. But if you want a free credit report then sign up to the free 30 day trial they offer and cancel it as soon as you get the first. If you cannot see how to cancel it on the website just tell your own bank to cancel the payment authority. It has to do that and refund any payments taken subsequently - see http://paullewismoney.blogspot.co.uk/2012/04/continuous-payments-racket.html. Callcredit has a subsidiary called Noddle which offers a free credit report for life. It makes its money by encouraging users to do deals with financial service providers.

Some banks will expect a minimum income and others will not want customers whose only income is from benefits. All the big banks have agreed to offer a basic bank account even to bad credit risks. These accounts do not have overdrafts but most do allow direct debits and standing orders. If you have been bankrupt in the last six years or you have a fraud flag by your name you may be rejected. The organisation that records fraud allegations is called CIFAS. You have a right to know if it does have your name on its fraud database. But it may be very hard to find out much else about it. Contact CIFAS here www.cifas.org.uk/enquiries_and_complaints. Ask which bank made the fraud allegation so you can challenge it with that bank. Banks are very resistant and difficult about providing any information if fraud is suspected. If you are not guilty of any fraud and all your attempts to put things right have failed then threaten CIFAS with court action for spreading damaging and false information. See http://news.bbc.co.uk/1/shared/spl/hi/programmes/money_box/transcripts/money_box_30_june_12.pdf and search for Fred.

One-on-One with Former Fed Chair Alan Greenspan

Dan Gross of Yahoo! Finance Interviews Larry Kudlow

MITT ROMNEY NEEDS TO SEND A CLEAR MESSAGE TO VOTERS ABOUT HIS ECONOMIC PLAN

Larry Kudlow, anchor of The Kudlow Report on CNBC and a budget official in the first Reagan White House, says this year's presidential election will be a referendum on the economy and President Obama.


The U.S. unemployment rate remains staggeringly high above 8 percent and is improving at a snails pace. The June jobs report Friday showed jobs were up from the previous month with 80,000 payrolls added, but still fell below expectations of 100,000 jobs. The problem facing Obama is the stark fact that no President since WWII has won re-election with unemployment above 7.4 percent.

Kudlow says Presumptive Republican presidential nominee Mitt Romney can win the election on his economic policies, but he has to communicate them better to voters.

"The trick for Mitt is to make the case with clarity that he's the guy to get jobs and growth going again," Kudlow tells The Daily Ticker's Dan Gross.

He says Romney should take a page from Reagan's 1980 election playbook: limit government, roll back spending, roll back regulation, strong defense, curb inflation.

"Mitt Romney needs to figure out what his four or five bullets will be," says Kudlow. "He has to say what he will do to turn around the country."

Kudlow says Romney has a plan but "hasn't marketed it well." He argues that Romney will hammer Obama on raising taxes including those to pay for Obama's health care plan, which the Supreme Court ruled last week was constitutional. But Romney needs to be optimistic and specific. The former Massachusetts Governor has to spell out he will "grow jobs and the economy, limit government deficits and debt so we won't be like Greece." Romney will get plenty of opportunities to sell his platform but Kudlow says his acceptance speech at the Republican convention in Tampa in late August will be "absolutely the most important speech in defining his campaign."