Cash only businesses

In my local neighbourhood there are half a dozen businesses that operate on a complete cash basis, mostly dry cleaners (some restaurants too). They do not accept cards and when purchasing their services, you won’t receive an official receipt. If you do get a receipt, it doesn’t contain the VAT number, company number or any other identifying piece of information.

Initially it may be perceived that is to avoid the inconvenience and overhead, however Square in the UK only charges 1.75% for contact less for transactions and is very easy to setup.

Perhaps a greater reason is the avoidance of 20% VAT*, Income Tax and National Insurance contributions. These may eat up to 30% or more of a dry cleaner/restaurants takings. * A business with revenue over £85,000/year is required to register and collect VAT.  By operating cash only, it’s easy to report being under this threshold. My average dry cleaning bill is about £22-25, which would mean about 11 customers a day would take you over the legal VAT exempt threshold. The cash only restaurant in the area has roughly 6 employees, it seems safe to assume the business exceeds £85,000 a year.

Once a dry cleaner in the area decides to cut corners on tax, they can undercut all other local dry cleaners on price. The end result of this in my area, all dry cleaners operate on a cash only basis. Any tax compliant dry cleaner would be out competed.

How can this be reformed? The Government could mandate that all retail businesses capable of sustaining a retail premise (ie a shopfront), must accept card based payments.

This would pull more of the business into a medium that leaves an evidence trail behind. These transactions would be far more likely to result in taxes being paid.

And about that 1.75% fee for card payments — the payments space needs to be reformed to bring the cost down. There are simple things the government could do, which I will write about next week.

 

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