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How is self-employed cash in hand work taxed?

We've updated this guide on 15th December 2020

It can be tricky to work out how self-employed cash in hand work is taxed. While most of us prefer money to land in a bank account, on-time and with the appropriate invoice number as a reference, the reality is that sometimes a client will pay you cash in hand. 

If you’re employed, it (should always) come with a payslip detailing your pension and tax contributions. But if you’re paid cash in hand when self-employed, you report your earnings to the government yourself. 

If I’m earning cash in hand, do I have to do a tax return?

Just like if your earnings are paid into a bank account, you declare any cash in hand earnings on your Self Assessment tax return. You do this by the 31st of January each year for the previous tax year. Confused? Here’s an example:

  • 6th April 2019 – 5th of April 2020 = 2019/20 tax year
  • Tax return deadline = 31st January deadline in 2021
  • Register for Self Assessment online by 5th October
  • Pay your tax bill for the tax year that has just ended

And if you’re paid cash in hand during the 2020/21 tax year:

  • Register for Self Assessment online by 5th October 2021
  • Pay your 2020/21 tax bill by 31st January 2022
  • You only do a tax return if you earn over a certain amount in each tax year

How is self-employed cash in hand work taxed and how much is it?

Tax on any income is made up of Income Tax and National Insurance, and cash in hand is no different. The rate of Income Tax that you have to pay in the 2020/21 tax year is based on the following table:

IncomeTax rate
Up to £12,5000%Personal allowance
£12,501 to £50,00020%Basic rate
£50,000 to £150,00040%Higher rate
over £150,00045%Additional rate

You only have to pay Income Tax when you earn more than £12,500 in a tax year. However, National Insurance is different. You have to pay it no matter how much you earn.

How can I keep track of cash in hand payments?

Keeping track of self-employed income is always important for tax purposes. But it’s even more important if you’re paid cash in hand. This is because there’s no digital record of the payment. 

You need to keep track of cash in hand self-employed earnings to ensure you pay the correct amount of tax. You must also be prepared to provide HMRC proof if they should launch an investigation into your earnings. 

As long as you’re keeping good records, there shouldn’t be anything to worry about. But here are some of the key things you should be doing to keep track of cash in hand earnings. 

  • Issue invoices – by doing this, you not only have protection should someone be late or refuse to pay, but you also have a digital or paper record of when the work was done, what it entailed and how much they owe you.
  • Issue receipts and keep a copy – upon payment, issue a client a receipt. Keep a copy for yourself to show when you were paid.
  • Make a spreadsheet of earnings – keep everything you need to know in one place with a simple spreadsheet. Keep a record of dates you issued an invoice, what work it was for, when you were paid and if you were paid in cash or into a bank account. 

If you have paper receipts or invoices, make digital copies of them all. That way if you lose data, or you’re investigated by HMRC, you can more easily resolve it.

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