The black economy is back in business but buying into it will seriously undermine our chances of climbing out of this recession, writes CAROLINE MADDEN

ONE OF THE by-products of this relentless recession is that it has brought about a 1980s revival. But don’t dig out the shoulder pads or book yourself in for a perm just yet. It’s not that type of revival. We’re talking about the resurgence of the under-the-counter culture that became the norm during the bad old days of the 1980s, with its wink-and-a-nod vocabulary of nixers, foxers and cash-only prices. In other words, the black economy.

A combination of slow economic activity and high taxes inevitably stimulates the shadow economy. Cash-in-hand arrangements spring up between employers and staff. Tradespeople start offering tempting VAT-exclusive quotes for jobs. Uninsured mobile hairdressers provide discount at-home services. Teachers make a few extra (undeclared) bob by giving grinds. Any arrangement that allows people to deal in cash and dodge the tax net becomes more attractive.

In the 1980s, the typical attitude to this type of activity was that it was the only way to make ends meet. And besides, everyone else was doing it.

According to Mark Fielding of the Irish Small and Medium Enterprises (Isme) association, the justification now being given by people engaging in the black market is that their income has dropped, but also at play is a general disillusionment with government (regardless of the fact that a new Government has taken office).

He says the typical line of reasoning goes as follows: “The Government has taken x, y and z from me over the past couple of years. They’ve squandered what they’ve taken from me. I’ll be jiggered if they take any more.”

Though understandable, ultimately this attitude is self-defeating. Fielding considers any short-term savings that consumers make to be equivalent to a “down-payment on a ticket to Australia to see their sons and daughters in three or four years”, because “this economy will never grow if we continue to put money into the black economy”.

Isme has estimated that the amount of tax lost to the black economy is €4.5 billion a year, an amount that would go a good way towards bridging the State’s revenue shortfall.

Unlike the big-picture bail-out and banking problems facing the country, the black economy is one area where individuals have the power to be pro-active and make a difference. But if civic duty isn’t a tasty enough carrot to convince consumers to avoid rogue traders, and pay tax on any nixers of their own, then there’s always the stick in the form of increasingly vigilant State agencies.

These are some of the most common ways that consumers can (accidentally or otherwise) blacken their record:

1. DON’T BE A ROGUE LANDLORD

So you couldn’t sell the apartment you bought as a starter home and you’ve decided to rent it out so you can move on to a larger property. Or perhaps you’re saddled with an investment property that’s now mired in negative equity.

You’ve managed to get tenants in, but the property doesn’t really “wash its face”, as the experts say, what with low rents, management fees, the €200 non-principal private residence (NPPR) annual tax and a myriad of other factors. Surely you could get away without declaring your rental income? After all, what Revenue doesn’t know won’t hurt them, right? Wrong.

Not only does non-declaration of rental income fall into the category of “black economy”, it’s also a false economy, because sooner or later you’ll be found out.

As part of its Shadow Economy Plans for 2011, Revenue is cracking down on the rental sector, and will be making use of the NPPR database and housing estate checks. What’s more, the Private Residential Tenancies Board (PRTB) shares information with Revenue. Trying to keep your tenancies under the radar by not registering with the PRTB isn’t a smart move either, because the agency has plenty of other ways of identifying rogue landlords, such as trawling through the rent supplement database of the Department of Social Protection.

Not convinced? By the end of 2010, the PRTB had issued almost 16,000 enforcement letters to landlords to ensure they comply with the legal requirement to register with them, and since last October it has secured seven criminal convictions against landlords.

2. DON’T DRIVE TOO HARD A BARGAIN

Yes, we know this probably flies in the face of every piece of consumer advice you’ve ever read, but bear with us.

According to Isme’s Fielding, rogue traders – particularly in trades involving home improvement – are undercutting legitimate businesses that are fully tax compliant.

While the traders are of course at fault, he says they’re pushing an open door because consumers not only haggle on prices, but expect tradespeople to provide the option of a lower, cash-only price which excludes the VAT that would most likely apply to an above-board price.

So while you might get your plumbing fixed at a knock-down price, you’re directly fuelling the black economy. And if having that on your conscience still doesn’t put you off, remember that facilitating tax dodges in this way means you are officially forsaking all future rights to take the high moral ground whenever Michael Lowry or Charlie Haughey come up in conversation.

3. EBAY TRADERS BEWARE

If you dabble occasionally in online selling, there’s no need for concern but if you’re among those traders who generate decent money from selling items on Ebay (where things like gum chewed by Britney Spears and toast that looks like the Virgin Mary spark bidding wars and sell for staggering sums) then you could be running up a tax bill.

In the UK, HM Revenue and Customs (HMRC) is cracking down on Ebay users who are considered to be trading, and has issued a guide to help people determine whether they should be taxed as e-traders. For instance, if you’re only using online auction sites occasionally, for example to clear your attic of unwanted presents, then you’re most likely a “non-trader” and are in the clear tax-wise. However, if you’re selling goods you bought with the intention of reselling them at a profit, or if you make items and sell them, or if you charge a commission for selling other peoples’ goods online, there’s a good chance you’ve got a trade going on and will be liable to tax on any profits.

Revenue confirmed that the position in Ireland is similar to that in the UK. “Basically, the rules to decide whether a person is trading would apply in a similar fashion whether a person is conducting transactions online or not,” a spokeswoman said.

What’s more, the Irish tax authority says that as part of its efforts to manage the shadow economy, it runs projects which involve investigating aspects of the internet, including online trading. In 2009 and 2010 Revenue carried out an investigation of vendors involved in distance selling, where goods and services are sold to consumers over the internet, over the phone, through catalogues etc. “Revenue will continue to target cases in this sector who are identified as posing the greatest risk,” it said. Ebay addicts, you’ve been warned.

4. BE FAIR TO THE AU PAIR

As well as the middle-class guilt that comes with employing someone to mind your children in your home, there’s also the small matter of your responsibilities as an employer to worry about. Tax consultant Claire McNamara of Accounts Advice Centre in Dublin, explains that Revenue has a list of criteria used to determine whether a person is self-employed or your employee. Realistically, if you take a nanny or childminder into your home, and they work for you full-time, it’s very likely you’ll have to register with Revenue as an employer, deduct tax and the universal social charge from their salary, and pay employer’s PRSI. Not only is this quite a bit of paperwork, but you’ll have to factor in the extra cost of the employer’s PRSI on top of the gross salary agreed with the nanny.

McNamara says that if in doubt, you should ask Revenue for a ruling on the status of the person working for you. She warns that penalties will apply if you don’t comply with your responsibilities. “Revenue are very, very well organised and tend to be able to identify non-compliance fairly quickly and do something about it,” she says. “Also you’re doing your employee an enormous disservice if you don’t comply.”

If the nanny’s PRSI payments haven’t been correctly deducted and paid, then he or she may not be able to claim social welfare benefits if you have to let them go and they can’t find employment. Further down the line their pension entitlements will be affected.

Elsewhere in the childcare sector, there is anecdotal evidence to suggest that a growing number of uninsured, unregistered individuals are operating informally as childminders, caring for a small number of children in the minder’s own home.

A spokeswoman for Childminders Ireland, which has about 1,000 registered members around the country, says that some parents may be putting financial considerations slightly ahead of quality, and advises them to check whether prospective minders are insured and have engaged in proper training.