NatCen Social Research carried a quantitative survey involving 9,640 interviews over two years about hidden economy activities, defined as activities in which the entire source of income (not necessarily taxable) has not been declared to HMRC for tax purposes. This includes selling via online platforms, casual work, making money from a hobby and renting out assets.

The results show an estimated 4.9% of the British population was found to be involved in the hidden economy, with an income in the past 12-months ranging from nothing to £90,000.

While 6% of those involved had a total personal income below the tax threshold, the research suggested that 2.6% of the British population was operating in the hidden economy with a presumed taxable income, which suggests that at least part of the income from their hidden economy activities is assumed to be taxable and should have been declared to HMRC.

However, in 63% of cases participants stated that it was quite or very unlikely that they would move their hidden economy activity into the formal economy within the next 12 months. The remaining participants – just over one third (37%) – thought it was quite or very likely that they would do so.

Almost half (49%) thought it would be difficult to declare their income or register for VAT.

The survey revealed that both hidden economy and non-hidden economy participants had similar views about business’ and individual’s attitudes to tax: the majority of hidden economy (89%) and non-hidden economy (90%) respondents believed it was common for businesses to try to pay as little tax as possible. Many also felt that individuals would try to pay as little tax as possible (83% in the hidden economy group and 66% in the non-hidden economy group).

More than two-fifths of hidden economy participants (43%) thought it was acceptable to not declare occasional income, and a similar proportion (40%) saw not declaring income from buying and selling things on the internet as acceptable.

Over half (53%) of hidden economy participants thought it was very unlikely they would get caught, although this is including those who currently have no obligation to declare their activity to HMRC.

Most participants (74%) thought that those who get caught would receive a fine, while nearly two-fifths (38%) thought that those who were caught would go to prison and 1% thought that nothing would happen.

The survey found that, overall, the level of income was low, with 44% of hidden economy participants reporting an annual income of under £250, and 14% reporting no income at all. Only around one in six hidden economy participants (16%) reported earning a higher income of £5,000 or more from their activities in the past 12 months.

The highest prevalence of hidden economy participation was found among those aged 16-24 (12%), and in larger or low income households: 8% of those in households with three or more adults and 11% of those earning under £10,000 a year.

The research identified three kinds of hidden economy behaviours. For ‘moonlighters’, the hidden economy activity supplements declared activity (57% of those surveyed), while ‘ghosts’ reported that they have not declared any of their sources of income (whether taxable or non-taxable) to HMRC. The third category, representing 5%, covers VAT non-registered, businesses that are assumed to have a turnover over the VAT threshold and are not registered with HMRC.

The Hidden Economy in Great Britain is here.

Report by Pat Sweet