Inland Revenue visiting 300 businesses in pursuit of unpaid tax

Thousands of people frustrated about businesses shirking their tax responsibilities have been reporting them to Inland Revenue.

The tax department said on Thursday it was in the process of visiting nearly 300 businesses as part of its "hidden economy" work.

This focused on businesses that might not be reporting tax correctly or dodging their obligations, such as taking "cash" jobs or payments "under the table".

IR said the businesses being visited were identified from a list of nearly 7000 anonymous tipoffs the department received each year.

"The volume of tipoffs has grown over previous years indicating an increased sense of frustration by the community in general with businesses who are not doing the right thing.

"Inland Revenue's has analysed the anonymous information at a high level. That's shown the tax risks overwhelmingly relate to taking the cash for personal use without recording sales and/or paying employees in cash. "

It had [(https://www.rnz.co.nz/news/business/526337/tax-department-comes-knocking-literally) already been making in-person visits this year] to people who did not respond to its attempts at communication.

IR said the risk of businesses not accurately paying tax was higher when they dealt with consumers and had goods and services at a low average price point.

"The lower the average transaction value, the more likely a customer is to pay in cash.

"Also, when businesses handle significant amounts of cash, business owners have a stronger means, motive, and opportunity to choose not to record the cash sales correctly for tax purposes.

"Businesses need to keep a record of and declare all income and sales, including any cash sales. It's fine to receive cash payments, so long as those are recorded and reported as income earned in GST and income tax returns."

IR said visits would be a chance for businesses to explain what they were doing and get help getting it right.

"But we'll also act on any further non-compliance, with consequences for them."

As part of IR's performance improvement review, published in June, the department was said it would aim to evaluate and report on the costs and benefits of estimating and reporting on the "tax gap" - people not paying tax when they should.

"IR noted the technical challenges in estimating the size of the tax gap but acknowledged the value in doing so to the extent practicable. Estimating the size of the tax gap and tracking it through time has the potential to enhance trust and confidence in the system."

Deloitte tax partner Robyn Walker said it was probably likely that businesses would avoid tax more often in difficult conditions.

"However, the New Zealand economy is quite well digitalised - people like getting invoices, pay electronically - which reduces the opportunity for under-reporting income."

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