New Zealand is missing out on about $800 million in its annual tax take due to the country's self-employed under-reporting their income by about 20 percent, according to the Inland Revenue Department.

Research by Victoria University and the government's tax authority estimates New Zealand's self-employed, which account for 12 percent of the workforce, on average under-report their income by a fifth. The paper, by IRD's Ana Cabral and Victoria University's Norman Gemmell, focused on the self-employed due to the lack of third-party reporting and limiting withholding of their income, giving them greater opportunity to dodge tax than people paying income tax through PAYE.

The paper draws on household income and expenditure data between 2006 and 2012 and shows the income gap varies by gender and region, with women under-reporting less on average and urban residents under-reporting more. Statistics New Zealand figures show there were 306,100 self-employed in the country as at Dec. 31, up from 260,600 a year earlier.

In the December half-year economic and fiscal outlook, the Treasury estimated individuals will pay income tax totalling $35.48 billion in the year ending June 30, accounting for about 46 percent of the total tax take.

IRD marketing and communications manager Andrew Stott said the tax department estimates it's missing out on about $800 million a year as a result, although the research couldn't break out how much of that was from simple errors and how much was intentional.

"This research suggests an average figure could mean a small number under-reporting deliberately and a larger number simply not getting things right in their returns," Stott said.

IRD has been targetting cash jobs in recent years with some success. Last year, just a quarter of people surveyed participated in cash jobs, down from 34 percent in 2011, and 62 percent of people saying they were unlikely to ask for cash job, compared to 49 percent in 2011.

Stott said that campaign has focused on the construction sector and trades, and will be expanded to hospitality next month.

The tax department also anticipates better compliance as a result of its business transformation programme, such as requiring labour hire firms to hold withholding tax for contractors and greater use of software packages to better manage provisional tax.

"If you're keeping good books in as simple a way as possible through cloud accounting, then we think they shouldn't have to do much more with us," Stott said. "It's not all about our people talking to individuals all over the country, it's systems talking to systems and that encourages people to have good systems."