Cash payments have long been a hot topic of discussion among small business owners and sole traders, with all manner of myth, rumour, and debate surrounding the benefits and, of course, the legalities, of taking them. Yet despite some believing they can’t be accepted without a bit of the old nudge-nudge, wink-wink going on, cash-in-hand payments have always been perfectly legal providing they’re properly declared.
However, all that could soon change if Philip Hammond gets his way.
Last week, the Chancellor revealed his Spring Statement, an update on the state of the country’s coffers and the plans in place to improve the economy. Whilst the majority of the UK’s media were abuzz over Hammond’s ideas around taxing single-use plastics and possibly getting rid of 1p and 2p coins, there was one detail in the spring statement that caused small business owners to sit up and take note.
Large cash in hand payments could be banned to help the government pull in an estimated £3.5 billion a year that it believes it’s missing out on due to people flaunting the system.
Under current laws, it’s perfectly acceptable for any tradesman to accept a cash in hand payment, but it must be dealt with in the same way as payments accepted into a bank account or via any other method. In other words, that payment is taxable according to the person’s current individual tax rate. Providing the tax is paid, the tradesman isn’t limited to how much payment he can receive.
Naturally, a system that relies so much on honesty leaves itself open to being exploited, which is where problems arise. Stories about less-than-scrupulous tradesmen offering a cash discount so that they can sneak payment under the tax man’s radar are hardly uncommon, and it’s this exact problem that Chancellor Hammond hopes to put the kibosh on.
Ban on larger payments
Tradesmen dealing with relatively low sums of cash needn’t necessarily worry just yet.
Under current proposals (and at this stage, that’s all they are), the rules would change to similar laws imposed throughout Europe. In Belgium, for example, businesses are forbidden from receiving cash payments for more than 3,000 euros, whilst in places like France and Spain, the limits can be up to 14,000 euros.
Ministers suggest that implementing such a limit in the UK would prevent large-scale tax avoidance and stop criminals from using cash-heavy businesses as a front to move large amounts of cash undetected, whilst making it possible for legitimate businesses to still use a certain amount of cash for smaller jobs.
Keep the receipts
Limiting cash payments isn’t the only way that tradesmen are likely to be affected by proposals laid out in the spring statement. In another move designed to rake in otherwise unpaid tax, the Chancellor suggested that receipts could become mandatory, meaning tradesmen would have to keep a written record of every penny coming into their business.
Whilst this may be good news to the tax authorities’ ears, not everyone is in complete support of the proposals.
Speaking after the announcement of the spring statement, Chas Roy-Chowdhury of the ACCA, a leading governing body for the accountancy industry, told the press that the move could provide honest tradesmen and their customers with unnecessary burdens and complications.
“The Government should have no truck with tax avoiders,” he said, “But we must be cognizant that we don’t want to things to become unnecessarily bureaucratic – for instance having to issue receipts for everything.”
Is banning large cash-in-hand payments a good idea? How would such a move impact your business? We’d love to hear your take. Get in touch using the comments below, or get involved in the discussion on Facebook or Twitter.