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If you are considering accepting cash in hand work, you may be wondering what the tax implications are.  

Well, the precise implications will depend on your personal circumstances.  

But if you have a full-time job and have been offered some work on the side or you don’t have a job but are thinking about accepting a small job to get back into work, here’s some advice that may help you understand the tax implication of cash in hand work.

Does HMRC Need to Know about Cash in Hand Work?

Yes!

You pretty much need to pay income tax on all your earnings, no matter how you earn them or are paid.  

But if you earn less than £1,000 in cash you may not need to let HMRC know about it. This is tax perk is known as the HMRC Trading Allowance and aims to simplify the reporting system for people who earn a bit of cash on the side from something like babysitting.

If you have a job, your employer will probably be giving you a payslip which details your gross earnings and tax & NI deductions, so HMRC will be informed by your employer of the earnings.  Simple, nothing extra to declare.  

There is nothing wrong with your employer paying you in cash but they must provide you with a payslip. Your payslip will show all the deductions made by your employer and what your net pay should be.

However, if you choose to do some additional work on the side for example then you’ll need to let HMRC know about your earnings. An example would be a school teacher offering private tuition.

Letting HMRC Know About Your Cash In Hand Work

Firstly, you need to decide whether the money you have made are ‘Casual Earnings’ or whether you are ‘Self-Employed’.

This affects how you register with HMRC and where you show your earnings on your self-assessment tax return form.

HMRC provides some guidance to help you with this decision, but if in doubt opting for self-employed is the safest option.

You’re probably self-employed if you:

  • run your business for yourself and take responsibility for its success or failure
  • have several customers at the same time
  • can decide how, where and when you do your work
  • can hire other people at your own expense to help you or to do the work for you
  • provide the main items of equipment to do your work
  • are responsible for finishing any unsatisfactory work in your own time
  • charge an agreed fixed price for your work
  • sell goods or services to make a profit (including through websites or apps)

Cash in Hand If You’re Self Employed

You will need to let HMRC know that you are self-employed by registering and filling in a self-assessment tax return form.

Ready to Register as Self-Employed? Check out my free 10 step guide to going self-employed.

Casual Income Cash in Hand

Again, you will need to complete a self-assessment tax return to let HMRC know about your cash in hand earnings and you can start this process by submitting a form SA1 which you can find here.

Regardless of how you classify your income, once registration is complete you will be issued with a UTR number (Unique Taxpayers Reference).  

Keep hold of this reference number as it is really important as you need it to set up an online government gateway account in order to file your self-assessment tax return online.

When time comes to complete your Self Assessment Tax Return you will need to declare your cash earnings within the “Self-Employment Section” of the return or the “Other Income Section”, if you’ve got casual earnings.

In both cases, you are can deduct allowable costs from your income which means anything you had to buy in order to earn the money you made.  

For example, if you are a hairdresser earning casual income or are self employed and you had to buy hair products, then you can deduct the cost of this from your earned income.

It’s important to keep a record of your costs, for example by keeping all your receipts, as this will reduce your taxable income and ultimately the amount of tax you have to pay.

How Much Tax Will I Pay on Cash in Hand Work?

It depends!

Income tax is calculated at different rates according to how much you earn.  

The 2019/2020 income tax rates are:

 2019/20202018/2019
Personal Allowance£12,500£11,850
Basic rate 20%£12,501 to £50,000£11,851 to £46,350
Higher rate 40%£50,001 and £150,000£46,351 to £150,000
Additional rate 45%over £150,000over £150,000

So for example if you earn £20,000 in your full time job and earn £2,000 casual income, then you will pay tax at 20% on your additional earnings (£400).

However, say you earned £40,000 in your full time job an additional casual income of £2,000 would be taxed at 40% – £800.

If your additional earnings are classed as self-employed income you may need to pay Class 2 and Class 4 national insurance as well as income tax.

 2019/20202018/2019
Small profits threshold – no NICs below this threshold£6,365£6,205
Class 2 National Insurance£3.00 per week£2.95 per week
 2019/20202018/2019
Small profits threshold – no NICs below this threshold£8,632£8,424
Class 4 National Insurance 9%£50,000£46,350
Class 4 National Insurance 2%over £50,000over £46,350

Ready to learn more about self-employment taxes? Then read this post.

When Do I Need to Pay the Tax to HMRC?

If you receive a payslip from your employer you will probably have noticed that an amount each month or week is being deducted for your tax and NI.

If you need to submit a Personal Tax Return under Self Assessment rules you will need to pay any tax and NI over to HMRC by 31 January each year, along with the return detailing your earnings.

The return submitted by 31 January covers the previous tax year.  

So for example, your tax return due on 31 January 2018 covers the tax year 6 April 2016 to 5 April 2017.

When you earn any additional money it is important to budget for any tax due so don’t forget to set some money aside for HMRC each time you’re paid.

If you are unsure you should definitely ask an accountant.

Updated 8 April 2019