It is entirely legal to pay for work ‘cash in hand’, rather than by card or bank transfer. This includes issuing wages to employees or workers, as well as paying for odd jobs or more regular goods or services provided by self-employed people and other types of businesses.
In certain circumstances, dealing with physical cash may be easier or more convenient. However, whilst jobs with cash in hand are not illegal, certain rules must be followed to remain on the right side of the law. The required actions depend on the situation.
Here, 1st Formations explains the legalities of paying cash in hand, including the deducting and reporting of tax on cash wages.
Paying employees cash in hand
Paying employees cash in hand is perfectly legal if you adhere to the rules, otherwise you could find yourself unintentionally evading tax or breaching employment law, both of which have serious consequences.
First and foremost, you can only pay an employee cash in hand if they agree to it. You must also ensure that they are aware of their legal rights and entitlements before doing so, including the right to statutory benefits.
Regardless of how you choose to pay your staff, they must receive at least the National Minimum Wage or National Living Wage applicable to them. It is illegal to underpay an employee simply because they are receiving their wages in cash rather than by bank transfer.
You must ensure that every employee receives payslips and all employment rights to which they are entitled, including workplace pension contributions, holiday pay, sick pay, and parental pay and leave. Their rights are exactly the same, regardless of how they are paid.
Deducting and reporting tax on cash wages
As an employer, you are legally responsible for deducting Income Tax and/or National Insurance contributions (NIC) from employees’ wages and then paying these deductions to HMRC. This means that the cash wages your employees receive must be their net income, as opposed to their gross pay.
Employees are required to pay Income Tax and Class 1 NIC on earnings above £12,570 per year (£242 per week; £1,048 per month). This is the limit of the standard Personal Allowance, which is the amount of money a person can earn tax-free in a year.
Additionally, you will have to pay Class 1 employer’s National Insurance contributions on any employees’ wages or salary payments above £175 per week (£758 per month; £9,100 per year).
Most employers pay staff wages (including cash payments) through HMRC’s Pay As You Earn (PAYE) system. If you are required to operate PAYE as part of your payroll, you must report all wages and deductions on or before each payday when you complete your Full Payment Submission (FPS), as well as at the end of the tax year when you file your final submission.
Whilst paying cash in hand may seem like a convenient way to distribute wages, it can cause needless complications. It’s more challenging to keep track of business transactions and tax liabilities when dealing with cash-in-hand payments, so it is easier to make mistakes.
Paying cash in hand for other work or services
It is not uncommon for private consumers and small businesses to pay cash in hand when they buy goods or services from self-employed people or other small businesses – for example, paying a childminder, cleaner, dog walker, or tradesperson.
Again, this is perfectly acceptable and legal, but the cash is still taxable and should be treated exactly the same as money received via any other payment method. Paying cash in hand does not remove the obligation to record, report, and pay tax on it.
This means that anyone who receives cash payments for selling goods or services is legally required to declare such payments in an annual tax return. However, the buyer does not have any reporting obligations to HMRC, unless they are also a business (e.g. a sole trader, limited company, or partnership).
Essentially, it doesn’t matter if you pay or receive cash in hand – it is the paper trail and declaration of such payments that are important.
There are, of course, some individuals who pay or accept cash payments as a way to get discounts on work or to avoid tax. However, more often than not, paying cash in hand is simply due to preference or convenience, or to minimise bank transaction changes from taking card payments.
How to find cash in hand jobs in the UK
Finding cash-in-hand jobs in the UK can be challenging due to strict regulations on tax and employment practices, but certain avenues can help you discover short-term, casual work. Here are some tips:
1. Leverage Local Networks and Word of Mouth
- Friends and Family: Many cash-in-hand jobs, especially in local trades like gardening, house cleaning, and minor repair work, are advertised by word of mouth. Let friends, family, and neighbors know you’re looking for casual work.
- Community Centers and Noticeboards: In smaller communities, libraries, cafes, and local noticeboards often feature postings for cash-in-hand work.
2. Explore Local Businesses and Small Employers
- Pubs, Cafes, and Restaurants: Hospitality businesses frequently need extra staff for peak hours, especially on weekends. Pop into local businesses and ask if they need any part-time help.
- Construction Sites and Landscaping: Trades like construction, landscaping, and gardening sometimes hire additional labor for short projects.
3. Online Platforms and Classifieds
- Gumtree and Craigslist: Both sites frequently feature listings for one-off gigs, especially under the “Jobs” or “Services” sections.
- Local Facebook Groups: Many towns and neighborhoods have Facebook groups where members post about temporary or cash-in-hand jobs. Search for terms like “odd jobs” or “cash work” in these groups.
- Task Platforms (e.g., TaskRabbit, Airtasker): These platforms offer a range of “gig” tasks where clients pay for specific jobs, from furniture assembly to pet sitting. Be sure to clarify payment methods to confirm they offer cash payment if needed.
4. Self-Employed Cash Services
- If you have any specific skills (like handyman abilities, painting, dog walking, or cleaning), consider advertising yourself as a self-employed service provider. You can make a simple flyer and distribute it around your neighborhood.
5. Stay Aware of Legalities
- Taxes: Legally, you should report any cash income to HMRC, even if it’s for casual work. Failing to report income can lead to fines.
- Right to Work: Ensure that you have the legal right to work in the UK for any jobs you take on, as working without the appropriate rights could lead to penalties for both you and the employer.
These options should give you a good foundation for finding cash-in-hand jobs, particularly if you emphasize flexibility and can take on a variety of short-term gigs.
Conclusion
Running a small business or working on a self-employed basis can be difficult enough without the added stress of keeping track of cash-in-hand payments. Whilst it may be a convenient option for some people in certain circumstances, it’s generally safer to make and receive digital payments instead.
By doing so, all relevant parties have accurate, indisputable, and permanent digital records of all payments made or received. This is crucial, whether you are an employee or employer, a self-employed individual or small business owner, or a consumer who has paid for a service.