Even if employees are being paid their wages through cash in hand, employers must provide them with a payslip, deduct income tax and national insurance contributions and make due payments to HMRC. The main aim of this blog post is to explore what can someone do if they are being paid cash in hand or become aware of an individual or business that does so. In addition to this, we will also discuss tax evasion in detail as well as its consequences. We will also review the process of income tax payment and the amount due upon individuals depending on their income. 

How Do I Report Someone For Working Cash In Hand?

If you are aware of someone who is being paid cash in hand and suspect tax fraud, you can inform the HMRC online or by making a phone call at 0800 788 887. In such a case, you will not be required to share your personal details or even your own name.

Being paid wages as cash in hand indicates that the business is avoiding being income tax and national insurance contributions on behalf of their employees. While you may not get into trouble for being paid cash in hand, your employer will be accountable in case income tax payment is deliberately being avoided by paying workers cash in hand.

If the nature of your employment includes tips, you must declare them to HMRC for income tax or VAT deduction.

However, if your employer deducts income tax and national insurance contributions before paying you cash in hand, there is no issue in such cases as there is no tax evasion taking place.  

Examples of deliberate tax evasion include the following:

  • Hiding/misquoting trading revenues or intentionally failing to file tax returns.
  • Importing goods VAT-free while selling them to customers with added VAT. Then deliberately avoiding to report VAT charges to HMRC.
  • Diverting funds from tax breaks to other uses instead of the claimed purpose.
  • False invoices or personal expenditure claims.
  • Non-declaration of imported goods.
  • Assuming the identity of someone else.
  • Undertaking tax evasion schemes.

If you have not paid your taxes unintentionally, you can report your situation to HMRC as soon as you realise that you have unpaid taxes. In this case, chances are high that you will not be prosecuted. Additionally, if you cooperate during the investigation, you can also avoid being penalised with hefty fines.

In such cases, you can avail of the following two options:

  • Work out a “time to pay agreement” with the HMRC. In this way, you can work out monthly instalments of your tax payments.
  • Pay a lump sum amount of your tax arrears and avail a time limit to pay the rest of the tax arrears.

What Happens If You Haven’t Paid Taxes In Years?

If you have intentionally not paid taxes in years in the UK, you are at risk of being convicted of tax evasion; which is a criminal offence. As a result of this, you can be sentenced to a jail term of up to 7 years or be penalised with an unlimited fine by HMRC.

If the HMRC suspect someone of tax evasion, they can conduct tax enquiries as far back as 20 years to gather the evidence before any legal action is taken against the individual.

When taxes remain unpaid, the HMRC charges a penalty first at a 30-day delay of payment, then again at 6 months and finally at 12 months. The penalty is 5 per cent of the original amount owed by an individual.

What Does HMRC Do If You Don’t Pay Tax?

If an individual deliberately avoids paying taxes or is unable to honour the terms agreed to in the “time to pay agreement”, HMRC can take the following action against them:

  • Confiscate possessions; which include vehicles that will later be sold at auction(called ‘distraint’)
  • Transfer funds directly from your bank account, if your debt is £1,000 or more
  • take court action
  • make you run bankrupt, or close down your business

Penalities charged by the HMRC for tax evasion include the following:

  • If someone is found guilty of income tax evasion, their summary conviction is 6 months in jail or a fine of up to £5,000. The maximum penalty for income tax evasion in the UK is seven years in prison or an unlimited fine.
  • If someone is found to be guilty of VAT Evasion of VAT, the maximum sentence is 6 months in jail or a fine of up to £20,000. In the case of a Crown Court, the penalty can be a maximum of seven years in prison or an unlimited fine.
  • If the case is about cheating the public revenue, the penalty is life in prison or an unlimited fine.
  • If someone is caught providing false documentation to HMRC, they may have to pay a fine of up to £20,000 or face up to 6 months in prison.

How Do I Know That I Have To File A Tax Return?

You don’t have to file a tax return if you are a salaried employee as your tax is deducted by your employer before your salary is paid; using the tax code assigned by HMRC. However, you must file a tax return if you fall into any of the below categories:

  • You are self-employed and your income was more than £1,000 
  • You earn through renting out property and your income was more than £2,500 
  • You earned through commission or tips in excess of £2,500 
  • You earn through savings or investments and your income was £10,000 or more 
  • You have sold a property or shares and have earned profits on them (Capital Gains Tax will apply in this case)
  • You are registered as a director of a profit-making organisation 
  • The joint income that you or your partner have earned was in excess of £50,000 and you claim Child Benefit
  • You have earnings from outside the UK 
  • You live abroad but you have earnings in the UK
  • The total amount of your taxable income was over £100,000
  • You are a trustee of a trust or a registered pension scheme
  • The State Pension you received during the tax term was your only source of income and was in excess of your personal allowance
  • HMRC issuphone callP800 stating that you didn’t pay enough tax in the previous tax term

How Can I File A Tax Return?

If you are filing a tax return for the first time, you need to register with the HMRC Government Gateway user ID. You will register differently depending on which of the following classifications:

  • you are a self-employed or a sole trader
  • you are not self-employed
  • you are registering a partner or partnership

Once you have registered, you can choose to file your tax returns by making an online payment or using a printed form SA100. This is your main form. Depending on the classification of your source of income you will also need to fill out either of the following supplementary forms:

  • SA102 for employees or company directors 
  • SA103S or SA103F for self-employed 
  • SA104S or SA104F for business partnerships 
  • SA105 for UK property income 
  • SA106 for foreign income or gains
  • SA108 for capital gains 
  • SA109 for non-UK residents or dual residents

Which Documents Do I Need To File A Tax Return?

Before you start with your self-assessment tax returns, you must make sure that you have the following documents available:

  • your National Insurance number
  • your ten-digit Unique Taxpayer Reference (UTR)
  • your Government Gateway ID
  • details of your untaxed income from the previous tax year (this includes income from rental income, dividends from shares, interest on savings, capital gains)
  • expense details related to self-employment or partnership status (receipts/invoices/bank statements)
  • tax-free/relieved charity contributions
  • P60 or other records with details of your income and paid taxes (if any)
  • pension income and pension contributions
  • redundancy payments or employee benefits

How Much Tax Do I Have To Pay?

While salaried individuals get their income tax deducted from their wages under the PAYE system, self-employed individuals will have to pay taxes on their trading profits through self-assessment. Below are details of tax rates based on income brackets that will be applied to your salaried income: 

  • If your income is between £0 and £12,570, you will pay zero income tax
  • If your income is between £12,571 and £50,270, you will pay a 20% tax
  • If your income is between £50,271 and £150,000, you will pay a 40% tax
  • If your income is over £150,000, you will pay a 45% tax

However, in the case of trading profits being assessed through self-assessment, your income tax rate will apply as follows:

Trading ProfitIncome Tax BandTax To Be Paid
Up to £12,5000%No Income Tax on first £12,500
Between £12,501 and £50,00020%20% Income Tax on your next £37,500 
Between £50,001 and £150,00040%40% on the final £2,000
Over £150,00045%No Income Tax paid at this rate

Conclusion:

The above discussion mentions details of situations where tax evasion may take place as a result of being paid cash in hand. One can easily report such instances to HMRC online or through a phone call without having to disclose their personal identity. However, one must keep in mind that being paid cash in hand on its own is not a legal offence if the employer is making income tax and national insurance deductions on behalf of employees and making due payments to HMRC.

FAQs: How Do I Report Someone For Working Cash In Hand?

Can you anonymously report someone for tax evasion in the UK?

Yes, you can anonymously report someone for tax evasion in the UK by calling the HMRC on their toll-free number 0800 788 887 or making an online complaint.

Do you get a reward for reporting tax evasion in the UK?

No there is no reward for reporting tax evasion in the UK as you are not even required to disclose your identity. Most people do so merely to report tax fraud.

What happens if you get caught working cash in hand?

Employers who get caught working cash in hand will be faced with heavy fines. On the other hand, employees will be required to pay the due amount of income tax and national insurance contributions. They may even lose Statutory Maternity Pay and Statutory Sick Pay.

Does HMRC investigate anonymous tip-offs?

Yes, Members of the HMRC’s Enforcement and Compliance Taskforce carry out investigations on anonymous tip-offs for potential tax fraud.

What happens if you have not paid tax for 15 years in the UK?

If you have not paid your tax for 15 years in the UK, you can expect to be charged with tax evasion and face penalties ranging from a fine of £5,000 and six months in jail to seven years in prison and unlimited fines. 

References:

Report tax fraud or avoidance to HMRC – GOV.UK

Can I report someone for working cash in hand?

Report fraud to HMRC – GOV.UK

What if I am paid in cash? | Low Incomes Tax Reform Group

Do I have to complete a tax return?.

I don’t know if I need to complete a Tax Return.

If you have not told HMRC about income – GOV.UK.

Haven T Paid Taxes In Years Uk? – ictsd.org

What to do if you’ve never declared your income

I haven’t filed a tax return with HMRC (Inland Revenue) in years, what do I do?

Dealing with income tax arrears – Citizens Advice

What are the penalties for tax evasion (UK)?.

What was missing from this post which could have made it better?

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.