When people work for cash in hand they often think they don’t need to tell HMRC. However this isn’t correct.
Whether you’re employed or self-employed, earnings received in the form of cash are due to be taxed in the same way as all other income is.
HMRC keep a close eye on the following three types of tax avoidance methods so beware!
- Businesses that are not registered for VAT when they should be
- Individuals who pay no tax on their income at all, known as ‘ghosts’
- People who only pay tax on a proportion of their earnings, known as ‘moonlighters’.
John is a self-employed plasterer in Liverpool. He records most of his jobs in a diary to complete his tax return. When John does smaller jobs for friends and family for cash in hand he records them in his diary but does not declare them.
HMRC randomly investigate John and discover he has under-declared his income over the previous three years by £15,000. HMRC demand he pays the tax due on this income with added interest and penalties.
John should have declared all income including cash sales on his tax return. He now has to pay more than he would have originally due to the interest and penalties charged.
Jennifer buys old furniture to refurbish and resell at a profit. She receives cash from customers but decides not to tell HMRC as she regards this as more of a hobby then employment, along-side her full time position as a hairdresser.
If HMRC discover Jennifer is earning money that she has not declared she will be forced to repay any due tax with added interest and penalties. She needs to register as self-employed to HMRC and complete a self-assessment tax return.
Terry is a carpenter. He records most of his sales through his books but does not declare the ones he receives cash for. According to his books, Terry’s sales for the year were £69,000. This is under the VAT threshold. Therefore, he does not have to register for VAT. However if Terry was to include the sales he makes in cash, his turnover would increase to £85,000 which is above the threshold.
Terry needs to include his cash takings in his self-assessment and register for VAT before HMRC investigate him.
Thomas is a driving instructor. He works for a driving school Monday to Friday, but has recently started offering extra driving lessons on weekends for extra cash. Thomas believes that, because he pays tax through his full time employment, he does not need to declare this extra cash income to HMRC. Thomas is mistaken and needs to register as self-employed and complete a tax return.
Changes for 2017
From April 2017, any income from selling goods and services of less that £1,000 does not need to be declared to HMRC and no tax will need to be paid on it.
If you are receiving income from any source, cash or not, you should declare it.
If HMRC investigate you, they can look at your lifestyle (cars, holidays, etc.) to see if it fits with your declared income. They can even monitor your Facebook!
If there’s a gap in your declared income, there can be heavy fines and interest.
If in doubt, get in touch with using the details below.
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Added by Jon Davies
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