Accepting cash in hand work? If yes, then you should know how you’ll be taxed on it. The taxes will be based on your circumstances, for instance, whether you are a registered self-employed person or have a job. This blog will explain how HMRC reviews cash-in-hand work and what you must do in the most common situations. Are you having trouble registering as a self-employed person? We’ll get your self-employed business up and running at low cost and less time. So fill out this form right now to save time & money! What Exactly Is a Cash In Hand Work Payment? It refers to the payments, where an employer pays an employee or a contractor directly in cash, rather than through e-transfers or bank deposits. While the act of paying is not illegal, it can become problematic if it is used to avoid taxes and National Insurance Contributions (NICs), which adds up to tax evasion and is illegal. This method is used in industries like hospitality, construction, home care and domestic services as it can be used to pay daily or weekly wages to workers. But they must comply with HMRC’s PAYE regulations. Is Cash In Hand Work Illegal? The act of being paid in cash itself is not illegal in the UK. However, it becomes illegal when the income is not declared to HMRC to avoid paying taxes and National Insurance contributions. For cash in hand work to be legal, both employees and employers must meet their tax obligations. For employees: If the employer doesn’t use PAYE, the employee must register as self-employed with HMRC if they are self-employed. They must report cash earnings via Self Assessment. For employers: Businesses that pay cash must record the payments, provide payslips detailing deductions for tax and National Insurance, and pay those deductions to HMRC. Additionally, all employers must submit RTI reports to HMRC every time employees are paid. HMRC Side Hustle Crackdown In recent years, HMRC has been cracking down on individuals receiving cash in hand work payments as part of their side hustles. This HMRC side hustle crackdown is focused on ensuring that all income is properly declared to avoid tax evasion. If you are earning money through a side hustle, even if it’s cash in hand work, it must be reported to HMRC. Failing to declare this income can lead to significant penalties and fines. Benefits Of Cash In Hand Work Payments Cash in hand work payments include several benefits, some of which are described below: For Individuals Cash in hand work transactions carry a lower risk of data breaches and help identify fraud compared to digital payments, as there is no risk of check bounce. They do not leave a digital trail, thus helping in more privacy and security compared to electronic payments. Note: Privacy does not exempt workers or businesses from keeping proper records or declaring income to HMRC. They are straightforward, eliminating the need for complex electronic systems and avoiding the frustration of system crashes and internet or server connectivity issues. For Businesses Businesses have an advantage in this way, that can avoid high transaction costs charged by card issuers and banks, especially for smaller transactions by accepting cash payments. Cash can help provide a backup for electronic payment systems, as it works even during blackouts or power outages or when the digital networks are down. This can also help in immediate cash flows, where businesses can receive instant access to funds through cash transactions, and can be used for immediate operational needs. Disclaimer: These benefits relate to the medium of exchange (physical currency) and not the legality of payment for work. All income earned must still be declared to HMRC in the UK, regardless of whether it is paid by bank transfer or in cash, to comply with tax laws. Drawbacks Of Cash In Hand Work Payments Cash in hand work payments have various drawbacks or limitations, which can arise due to various reasons, like: Legal Risks If proper documentation is not done, cash in hand work payments could lead to tax compliance issues and various legal consequences. Lack of Tracking Physical cash payments do not automatically create digital records like card transactions, making them difficult to track. Moreover, it might lead to human error, making it harder to prove income to HMRC. Tax Compliance and Legal Issues It is illegal to fail to declare income to the tax authorities, including cash income. This can result in heavy penalties, fines and even imprisonment for individuals. What are Your Responsibilities When You Pay Your Employees Cash in Hand? When you are paying your employee cash in hand work in the UK, you remain responsible for deducting and remitting Income Tax and NICs through the PAYE system to the HMRC. Failure to comply with these responsibilities can result in heavy fines, penalties and legal consequences for non-compliance. The following are your responsibilities as an employer: Report To The HMRC You must ensure to submit accurate and timely returns to the HMRC, reporting your employee’s earnings and the deductions made through PAYE. Providing Payslips Employees are entitled legally to a detailed payslip with every payment, whether it is cash or through bank transfer. Complying With Minimum Wage Laws As an employer, you must ensure that the gross pay for all working hours meets the National Minimum Wage requirements. Meeting Statutory Entitlements You must remain responsible for paying the employees statutory benefits, statutory sick pay or maternity pay. Can An Employer Get Into Trouble For Paying Cash In Hand? Yes, an employer can get into serious trouble for paying cash in hand, if they are doing it to avoid declaring income and paying taxes, this constitutes tax evasion. This can include failing to deduct tax and National Insurance through PAYE, failing to report these payments to the HMRC and paying less than the National Minimum Wage. Penalties can be either heavy fines or prosecution and imprisonment, and employees may lose important employment rights and benefits. There are various …

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