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.
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Starting at £59* per yearLarge 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.
Avoiding tax
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.
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Caring and knowledgeable staff ready to assist youSpeaking 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.
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5 Comments
Its always tempting to accept an offer of a reduced price if paid in cash. But as a consumer are you breaking the law knowingly paying on these terms or is it just the service provider who is flouting the law?
Hi Harry, you would be complicit in tax evasion, but only if you knew the reason for the cash payment was to Evade tax. More likely the reason for cash is less processing fees from things like credit cards and possibly better cashflow offering a customer a card payment means the business loses a percentage of that sale to processing.
Taking bank transfer comes with risks of late or non-payers.
Whereas cash is not charged any processing fee and it’s less easy to avoid paying when the plumber is waiting on his cash in the living room of your house.
Cash is a legitimate payment form and the discount your offered could just be an incentive for a less troublesome method
Hi
I am having a new boiler fitted tomorrow and I accepted the best price as usual . However I need to pay cash purely as its a small one man business that doesnt do cards (or cheques as they often bounce .). Neither me , the custome,r nor the plumber are trying to avoid tax or organize a price reduction . Its merely because cheques are a hassle and I dont bank online .
The wealthy employ tax avoidance, which, of course, is perfectly legal whereas the poorest have to resort to tax evasion which is a criminal offence. Alas, it was ever thus.
Most banking apps allow you to scan a cheque to pay it into an account, and online transfers are often immediate and don’t incur fees as far as I know. I welcome this move – everyone should be paying their fair share and I think the scale of lost taxes are huge