Self-employed may under-report tax

Posted 26th October 2017 in For Businesses For Workers

Self-employed workers are more likely to under-report their tax obligations on their annual tax returns, claims the Institute for Fiscal Studies (IFS).

Each year, ten million people file self-assessment tax returns, but more than a third of those audited by the HMRC were found to have mistakes – equal to an average under tax payment of £2,320.

The majority of those underreporting tax owed less than £1,000, but less than four per cent owe over £10,000.

The IFS study found men were more likely to be non-compliant than women – 40 per cent compared to 27 per cent. While the construction, transport and hospitality industries had the highest incidents of non-compliance.

Non-compliance was also more prevalent in self-employed, with 59 per cent of taxpayers of those whose income was only from self-employment wrongly reporting their tax obligations.

Arun Advani, research fellow at the IFS, said: “Audits bring in tax directly, but also change taxpayers’ behaviour. Audits work not because they scare people into complying in future years, but because they give HMRC more information about people’s incomes.

“The change in behaviour actually brings in more than the original audit.”

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