The Hidden Economy in the UK

About the study

The Hidden Economy is defined as economic activities which are entirely hidden from HMRC. It includes businesses that are not registered for VAT, individuals who are employees in their legitimate occupation but do not declare earnings from other sources of income, and individuals who do not declare any of their income to HMRC. The Hidden Economy is therefore distinct from other forms of tax evasion which include activities that are known to HMRC, but the sizes of these activities have been under-declared for tax purposes.

Following on from an initial study in 2015/16, this study explored the scale of the Hidden Economy in the UK, the characteristics of the people and activities involved and people’s motivations for participating.

Findings

The Hidden Economy has grown since 2015/16                                         

• Around 1 in 10 UK adults (9%) participated in the Hidden Economy in 2022, an increase from 2015/16 (5%).
• Accounting for all sources of income, 54% of people participating in the Hidden Economy had a total income above the tax threshold (£12,570). This is 5% of all UK adults – up from 3% at in 2015/16.
• Possible explanations for this change include the growth of the gig economy and the impact of COVID-19 on employment, but figures may also have been affected by methodological changes from Wave 1.
• Younger people, people in full time education and the unemployed were most likely to be involved in the Hidden Economy. People who reported experiencing a more difficult financial situation were also more likely to be participating in the Hidden Economy, as were those who perceived their financial situation to have worsened since the beginning of the COVID-19 outbreak.

For most, participating in the Hidden Economy was a transient, small-scale activity supplementing another income source

• The majority of Hidden Economy activities generated relatively small amounts of income (50% below £250, and 12% none at all).
• Four in five (83%) Hidden Economy activities were seen as temporary and three in four (73%) had been going on for less than a year. Almost half (45%) were carried out less often than every three months. 
• Reflecting this, the primary reasons given for not declaring income to HMRC was that the income was either too small (over 30% of Hidden Economy activities) or irregular or temporary (over 20% of Hidden Economy activities), and thus they did not know they had to or think it was worth the time declaring.

Methodology

Fieldwork for this study was conducted using the random-probability NatCen Panel. The NatCen Panel is a panel of people recruited from high-quality, random probability surveys such as the British Social Attitudes survey. Those agreeing to join the Panel are then invited to take part in additional short surveys covering a range of different topics either online or over the phone.

By using a probability-based sample and allowing those without internet access to take part this design reduces the risk of bias compared to online-only surveys which exclude those who do not have access to, or are less confident using, the internet or surveys using convenience samples which are more likely to include people who are more ‘available’ or particularly want to express their views.

The survey was conducted between 21st July and 21st August 2022. Respondents were asked about all of their income generating activities, and from their answers it was established whether they had any involvement in any Hidden Economy activities. Additional questions were then asked to learn more about participants involved in the Hidden Economy and those activities.

A total of 5,537 of the 7,755 panel members invited to take part did so, either online or over the phone, giving a 72% survey response rate. Taking account of nonresponse at the recruitment interview and at the point of recruitment to the panel, the overall response rate was 10%. The data were weighted to be representative of the UK adult (18+) population.