Is Cash In Hand illegal in the UK: What Employers Need to Know

London (Parliament Politics Magazine) – Cash in hand is not illegal in the UK as you are paying someone for the services they render. However, you need to look for the income tax implications for paying and receiving the payment. If you want to pay cash to your employees both parties must complete HMRC obligations. When you are self-employed and want to get cash in hand you need to declare your income on the annual tax return.

If you fail to do so, it can be subject to many penalties from HM Revenue and Customs. Similarly, if a company is paying employees in cash they have to deduct income Tax and National Insurance. When the business fails to do that, it will have to face penalties from HMRC.

What Rules Must You Follow If You Want Cash In-Hand Payments?

If as an employer you want to accept cash hand payments there are some important things you need to know. The first step is that you have to remain liable for taxes that come with the cash. Secondly, you need to have a proper system for paying your employees in cash. One of the most essential parts is to report your cash payment to HMRC. It will involve keeping a record of how much money you are taking or what amount of tax is applied to them.

The business must keep an accurate record of hours worked by its employees. You shouldn’t try and discriminate against any of the workers though. Moreover, you need to consider the possibility of theft and cases of emergencies. If a company has a large sum of money it can try to invest it in security measures.

Make sure that your business is properly insured and licensed. It is necessary to report all these details to the HMRC. The cash-in-hand payment has to go through a deduction due to tax and National insurance. You can also keep the pay slips to present your record fully to the HMRC.

What Are the Tax Implications of Making Cash in Hand Payments?

There are a few tax implications that the company must know before handing out the cash payments. If you don’t follow the right rules it will be considered tax evasion. You may have to pay heavy fines especially when the money is not properly accounted for in the books. All this will create an issue, especially during the time tax is calculated. The employer has to remain responsible when it comes to keeping a good money record.

 Apart from that there are many other advantages of paying cash in hand. Many people believe that it is a fast and convenient method. However, you must maintain proper channels when the flow of money is concerned. It will help you save administrative costs as well. All you need is to look for the pros and cons before making the final decision.

How Can Employees Claim Benefits If They Are Paid In Cash?

Many small businesses in the UK choose to pay their employees in cash. However, it can create some issues for employees when they claim benefits. The tax system in the UK is a little challenging to follow. However, it allows employees to claim benefits when they are paid in cash. Businesses are not aware of this situation. Moreover, they don’t have proper documentation to present to the authorities. 

As a result, employees find it difficult to claim the benefits leaving them in trouble. If the employees feel that are paid in cash illegally, they may take an action though. Firstly, they should try and get in touch with the owner. They must look for proper documentation before making the final move. If the employer fails to take action you must contact HMRC right away. When all these attempts fail you can try to take your business owner to the court.

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Penalties For Not Declaring Cash In Hand Payment

Employers in the UK will be charged with fines and penalties if they don’t declare cash-in-hand payments. If the authorities find out that you have failed to declare the payment, it is an indication of trouble. They can take legal action against you that will result in a court order. If the company is found guilty of tax evasion it may have to face a prison sentence. The prison sentence can go up to seven years. Additionally, it is an offense if you don’t declare the received income properly. If you don’t declare your entire income in the UK, get ready to pay a fine of up to £3000.

Beth Malcolm

Beth Malcolm is Scottish based Journalist at Heriot-Watt University studying French and British Sign Language. She is originally from the north west of England but is living in Edinburgh to complete her studies.