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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, you would receive a payslip detailing your salary, pension and tax, like Income tax and National Insurance contributions (NIC). In this case, you’d need to keep an eye on your tax code and make sure it correctly reflects your situation. You can use our tax code checker to see what the letters mean and how they relate to your salary. Your payslip will also outline how much tax and NIC you have paid over the past year.
If you’re paid cash-in-hand, however, you report your earnings to the government yourself via 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 to HMRC.
Registering with HMRC for your tax return is simple and needs to be done by the 5th of October. Next, you have to file by 31st January each year for the previous tax year.
Confused? Here’s an example:
And if you’re paid cash in hand during the 2023/24 tax year:
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 2023/24 tax year is based on the following table:
|Up to £12,570||0%||Personal allowance|
|£12,571 to £50,270||20%||Basic rate|
|£50,271 to £125,140||40%||Higher rate|
|over £125,141||45%||Additional rate|
You only have to pay Income Tax when you earn more than £12,570 in a tax year. You pay National Insurance when you’re self-employed when you earn more than £6,725.
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.
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.
If you have more questions, don’t hesitate to get in touch! Our friendly support team is happy to help. You can reach them at [email protected] or via the live chat on the homepage.
Don’t panic. We can help. We offer one-off, personal tax advice from an accredited accountant for just £119. Book a phone or video call to get your head around the next steps. Learn more here.
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