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How Tax Works on Cash in Hand Work

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Categories Self Employment Tax

Cash in hand jobs tend to be short-term arrangements with an employer who pays casual staff in cash instead of directly into a bank account. These types of jobs tend to be common in certain industries or at times of the year such as Christmas.

It’s not illegal to be paid cash in hand, but there are some things to be aware of. Find out about the casual earnings limits in the UK and how tax works on cash in hand work.

Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

Is Cash In Hand Illegal?

It is not illegal to be paid in cash, whether you receive a payslip or not. But most types of income are taxable and must be reported to HMRC in case there is tax to pay by both you and your employer.

When people are employed, they receive a payslip that details gross earnings and contains a tax code which tells their employer how much income tax and National Insurance to deduct.

But, when employers pay their staff cash in hand without a payslip sometimes there no income tax or national insurance is deducted. Therefore, it’s down to the person receiving the cash to work out whether any should have been.

How Much Can You Earn Cash in Hand Without Paying Tax

Once you earn more than £1,000, you need to tell HMRC about your cash earnings. Below this threshold, you can take advantage of the trading income allowance letting UK taxpayers earn up to £1,000 during a single tax year without telling HMRC about it.

It helps to simplify the tax system for people just bumping up their income with things like selling on eBay or doing a bit of cash in hand work.

Once you earn over £1,000 cash in hand in a tax year, you’ll need to let HMRC know about your income, even if you’re earning below the personal allowance.

How to Let HMRC Know About Cash In Hand Jobs

The way you let HMRC know is first deciding whether you have casual earnings or you are self-employed. Casual implies what you are doing is one-off.

In contrast, being self-employed means you are probably in it for the long term to build a stable income working for yourself. If you need help deciding whether you are self-employed on not, then read this guide ‘What is Self-Employment.’

Declaring Cash in Hand If You’re Self Employed

If you are self-employed, you’ll need to register and report your earnings to HMRC on a tax return once a year, by the 31 January. You’ll do this in the self-employment section of your return. This is the section where you need to declare the income and expenses of your business, then paying self-employed tax accordingly.

Declaring Casual Income to HMRC

If you have received casual income, you’ll need to report this to HMRC once you get paid more than £1,000. You’ll do this by registering with HMRC to fill in a tax return by completing an SA1 form, which you can find here.

Whether you are self-employed or have casual income, you’ll know your registration with HMRC is complete once you’re issued with a UTR number. Keep hold of this reference number as it is really important. Plus, you’ll need it to manage your taxes.

When you fill in your tax return to declare your casual earnings, you’ll need to enter the amount you were paid in the main section of the return in the section for Other UK Income (box 17).

Tax on Cash in Hand Work

You are can deduct allowable costs from your income in Box 18. That means, if you had to buy anything in order to earn the money you made you can claim this as a deduction against your income. However, you need to make sure you keep receipts as evidence. For example, if you were a hairdresser and had to buy products. You can’t deduct all expenses though, even if you do feel you paid for them in the course of your job. But, you can check what you can and can’t claim in this guide to allowable expenses.

How Much Tax Do You Pay?

Income tax is cumulative. This means the more you earn, the more you pay and it depends on all your earnings, not just from cash in hand. So, if you have a full-time job, the amount of income tax you pay will be based on your combined income.

Income Tax Rates for Tax Year* 2023-24

England & Wales

Scotland

  • 0%: £0 to £12,570 (personal allowance)
  • 19%: £12,571 to £14,732 (starter rate)
  • 20%: £14,733 to £25,688 (basic rate)
  • 21%: £25,689 to £43,662 (intermediate rate)
  • 42%: £43,663 to £100,000 (higher rate)
  • 63%: £100,001 to £125,140 (higher rate + personal allowance restriction)
  • 47%: Over £125,141 (top rate)

* the tax year runs from 6 April to 5 April

Say you earn £20,000 in your full-time job and earn £2,000 casual income. In this example, you will pay tax at 20% on your additional earnings. This equates to you paying £400. However, if you earned £50,000 in your full-time job, an additional casual income of £2,000 would be taxed at 40% so you’ll pay £800.

If your cash in hand earnings are classed as self-employed income you may need to pay Class 2 and Class 4 National Insurance on your earnings, as well as income tax. There are tax-free amounts you can earn before you start paying national insurance.

Sole Trader Tax Rates

Tax Year 2023-24*

Income Tax

National Insurance

  • Class 2 NI £3.45 per week on taxable profits over £6,725
  • Class 4 NI 9% on taxable profits between £12,570 to £50,270 and 2% thereafter

* the tax year runs from 6 April to 5 April

You’ll need to pay any tax you owe by the 31 January, along with filling in your tax return. There are penalties for missing this deadline and not paying your tax on time. So, it’s a good idea to put all the tax year dates in your diary now as a reminder. And don’t forget to budget for your tax bill to avoid any nasty surprises.

Also, if you are employed and receive a payslip from your employer, you can choose to fill in your tax return a bit earlier, by the 31 December. You can then choose to ask HMRC to collect any tax you owe through your tax code (up to a maximum of £3,000).

Paying Tax on Cash In Hand Work Through Your Tax Code

Key Takeaways

  • It is not illegal to be paid cash in hand, but it is illegal by both the employer and employee to not tell HMRC. However, this does depend on the amount and circumstances of the arrangement;
  • You can earn up to £1,000 tax-free, without letting HMRC know about it under the rules of the trading income allowance;
  • Once you get paid more than £1,000, you’ll need to register as self-employed with HMRC if you plan to be in business or register for self-assessment if you have casual earnings;
  • The amount of income tax you pay depends on your total earnings and if you’re self-employed, you’ll pay class 2 and class 4 National Insurance as well.

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