Around 10% of the UK economy operates off the books. That means billions of pounds worth of cash-in-hand payments that never get taxed.
But all of that cash isn’t necessarily being handled by career criminals. Much of it is being earned by the hard work of painters and decorators, hairdressers or landscape gardeners.
Many of these workers will have started off using cash payments as a springboard – a cheap, low-risk way to test whether a business idea works before committing to the formalities (and costs) of making everything official.
But sometimes these businesses end up trapped in the “informal” or “hidden” economy – not because of personal greed or an aversion to paying tax, but because they can’t afford to lose the customers that helped them get started in the first place.
Our research highlighted the problems workers face as they set out intending to build a fully legal and legitimate tax-paying business.
Many cash-in-hand businesses win their first customers – who may be supportive neighbours or friends – by being cheap. Working in cash, without the tax and overheads a registered business has to carry, they can undercut everyone else.
Those prices then become expected and lead to word-of-mouth recommendations. As one self-employed plasterer told us: “At the start I kept the price low just to get work, to build it up. But now people expect that [same] price.
"If I raise it, they’ll go somewhere else. It’s hard to change it once you’re known for being cheap.”
A heating engineer commented: “Initially, I did build a good customer base, but now I know [it was] because I was so cheap. I wasn’t accounting for tax and all that.”
Trust and reputation can grow by being a familiar, reliable face in the neighbourhood. As one painter and decorator explained: “I didn’t need a website or anything. People know me around here, they knew I’d do a good job. That’s how I got work, just word of mouth. That’s all I needed.”
A cash-in-hand economy runs on trust, reputation and identity – which is precisely why lots of businesses don’t manage to leave it behind.
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For the full article visit the Conversation.