A hotline set up to crackdown on the “hidden economy” received more than 40,000 calls relating to the maintenance and home improvement sector in its first year.
But investigators struggled to deal with all the tip-offs, according to a top level review.
Her Majesty’s Revenue and Customs (MHRC) admitted to the National Audit Office (NAO) that it was overwhelmed with cases and the total additional tax recovered was just £2.6 million, £29.9m below its original target.
Officials also found themselves investigating far more individual workers than businesses. This resulted in it completing only 14 company compliance reviews instead of the 2,600 originally targeted.
A HMRC spokesman said: “The public response to the hotline generated more calls than originally anticipated. However, not all calls were of sufficient quality to enable immediate action and additional work was required to action this information.
“Much of the information received related to individuals rather than businesses which lowered the amount of tax involved against original expectations.”
The NAO report said HMRC was becoming more effective, but added: “The risk of being detected and the consequent penalties for non-compliance are relatively low, and there are opportunities to tackle the hidden economy more effectively.”
In total 120,000 calls were received by the hotline in 2006/2007 with 40 per cent from the maintenance and improvement sector, which covers central heating, insulation and electrical work.
HMRC staff completed 1,823 cases prompted by calls covering people who pay no tax at all – known as ‘ghosts’ - or moonlighters who fail to declare additional income compared to the target of 2,100. Small business investigations were also well below the target of 800 at 146.
The pursuit of ghost or moonlighting workers on average only generated additional tax of £890 per case compared with the small business investigations average of £4,630. As a result HMRC is now looking to drop smaller cases to focus on cases which will lead to the recovery of more tax.
Mr McDavid said: “It is unfortunate if that is the case. From our point of view the issues of competence and health and safety are more important than purely fiscal issues. The more rogue traders brought to book the better.”
HMRC now plans to include targeted advertising to high risk areas such as the home repairs, maintenance and improvement sector to encourage people into the formal economy, it also wants to change public attitudes to employing people within the hidden economy.
Mr McDavid said this was an important issue: “Consumers need to look at whether the people they are employing are CORGI members, and whether they have got the right qualifications and competences to handle the job.”