Is it Illegal to Do Cash in Hand Work When Redundant?
Being made redundant is not only hard on your morale, but also your finances.
When you find yourself strapped for cash it may be tempting to think that doing the odd cash in hand job and pocketing the money will not do any harm.
But you could be breaking the law if you do not pay the appropriate tax on your earnings.
While it is not illegal to do cash in hand work when redundant, it is illegal if you or your employer are not paying the required tax on your earnings.
What Are the Consequences of Doing Cash in Hand Work?Many people think that doing the odd cash in hand job here and there does not make them liable for tax, but this is not the case and the work you do you will need to be properly taxed.
Whether you are working on a temporary or full-time basis, by law your employer must deduct both Income Tax and National Insurance from your wage.
It is the law that they deduct this from your wage and give you appropriate payslips to show this, even when they are paying you cash in hand.
If for any reason they cannot do this for you, it will be your responsibility to pay the tax and you can do this by registering yourself as self-employed.
If you fail to disclose what you are earning you could risk losing your jobseeker’s allowance and any other employment related benefits you are entitled to.
You could also find that you receive a hefty bill from HM Revenue & Customs once they find out you have not been paying your contributions, or even a fine.
Are Students and Pensioners Exempt?There are some exceptions to the rule though and you will not have to pay Income Tax on your earnings if you are a full-time student in the UK and only working in the holidays, or you are returning to full-time education once your school or university holidays are over.
You will however still have to pay National Insurance if you are earning more than £139 a week.
There is also a bit of good news for pensioners, if you have reached state pension age you will not need to pay Class 2 National Insurance contributions on any cash in hand work you do. You will also stop paying Class 4 contributions the following year, however you may still be liable for Income Tax.
Are There Any Other Exceptions to the Rule?It is important to declare any cash in hand work that you do to HM Revenue & Customs, even if you are not sure you will be liable for tax.
But there is a personal tax-free allowance, which allows you to earn a certain amount before you are liable for any tax.In the tax year 2011-12 the allowance was set at £7,475 and historically this will increase a little bit each year. If you are employed by a company you will also not have to pay National Insurance if you earn less than £139 a week.
If you are self-employed you may be exempt from Class 2 National Insurance contributions if your profits for the year are expected to be less than £5,315, Class 4 National Insurance contributions will only be due if your profits exceed £7,225 in the year.
It is acceptable to do up to 16 hours of work per week and still receive all or some of your jobseekers’ allowance, depending on how much you are earning, so the thought of losing these should not deter you from being honest.
Better to be Safe than SorryThere have been a number of high profile cases in the newspapers of late about people dodging tax or claiming benefits despite them doing cash in hand work. It is an area that the government is looking to crack down on and stamp out, as it can cost the taxpayer millions of pounds every year.
If you do any kind of work that is cash in hand you should double check that your employer is deducting the required tax and National Insurance. If you suspect they are not you can tell the tax office about this confidentially. If you are doing cash in hand work for a number of different people it is worth registering yourself as self-employed and filing a tax return every year.
If you are doing any kind of work it is best to declare it because if you don’t and you are liable you may end up paying twice as much in tax further down the line.