Cash in HandThis week there have been numerous reports in the press regarding cash in hand payments, after David Gauke, the Exchequer Secretary to the Treasury stating that he believed that paying trades people cash in hand was “morally wrong”. Following this statement there has been much confusion and discussion of the morality and legality of paying cash in hand.

Cash In Hand Work – The Facts

  • Paying in cash is a valid and legal method of payment for goods or services.
  • Paying in cash may be more convenient for the customer, particularly if they don’t have access to a bank account or credit cards.
  • Many businesses prefer not to be paid by cheque due to the risk of the cheques being bounced and the bank fees that will be incurred.
  • Accepting other payment methods, such as credit cards can be costly, with either the business paying the cost or passing it on to the customer.

What Is Legal

  • Paying in cash and receiving cash is legal
  • Offering a discount for cash is legal, this may be offered as it saves time and money on debt collection and may reduce banking charges
  • Small businesses that are under the VAT threshold do not have to register for VAT unless they chose to do so. The current 2012 VAT threshold is £77,000.

What Is Not Legal

  • If a business does not declare their full income therefore avoiding income tax or corporation tax and possibly VAT this is tax evasion. This is a criminal offence.


The utopia would be for all individuals and businesses to declare everything and pay all the tax they owe. If everyone did do this then it is argued that tax rates would be lowered for everyone and thus the system would be seen to be a little fairer.

Fortunately or unfortunately (depending on your view point) we don’t live in such a place, we live in the real world. Many honest people try really hard to make sure they declare everything possible to pay the correct amount of tax. However, the tax system is so complicated millions are underpaying tax and many others are overpaying tax. Even the tax payer that is paid via PAYE is not exempt from this confusion; for example, if they are a higher rate tax payer they may be missing out on valuable pension tax relief.

I would love to see tax simplified; perhaps a flat rate income tax for everyone, no more pretending that National Insurance isn’t just another tax.  Or perhaps a lump sum for everyone and the eradication of complicated tax schemes to avoid tax. However, we are far away from a simple life.

So for now, don’t feel guilty when you pay your window cleaner cash in hand £10 each month.  You are saving them a trip to the bank, and they are probably so scared of the tax man that they are diligently recording every £10 they receive in a ledger for their accountant to calculate their full accounts and tax return at year end.