When people talk about earning cash in hand, they usually mean getting paid directly in cash—often for informal jobs or side projects—without going through traditional payroll or business invoicing systems. Common examples include freelance gigs, odd jobs, babysitting, or short-term manual work like gardening. While it might seem more “under the radar,” cash in hand work in the UK is subject to the same rules as any other income.
If you exceed certain income thresholds, you will be obliged to declare it to HMRC (His Majesty’s Revenue & Customs) and potentially pay income tax and National Insurance contributions. Failing to report cash in hand earnings can lead to serious consequences. In this article, MONEYSAFE explores just how much you can earn in the UK before paying tax on these informal payments, and how to remain compliant if you regularly receive cash for your work.
1. Introduction
How Much Can You Earn Cash in Hand Before Paying Tax in the UK?
No matter how you’re paid—through a bank transfer, cheque, or cash—the UK tax system views your earnings in the same light if they surpass specific thresholds. The actual question many ask is: “Is there a certain amount you can earn in cash in hand each year without paying income tax or National Insurance?” The simplest answer is that your personal allowance (a set limit of how much you can earn in a tax year before income tax kicks in) applies equally to all your earnings, whether in cash or otherwise.
However, the rules can be confusing if you have multiple sources of income. For instance, you might earn a salary through formal employment and do extra self-employed work on the side, getting paid in cash. This article will clarify the circumstances under which tax is owed, focusing on topics like self-employed thresholds, National Insurance classes, VAT considerations, and how to keep records of your cash in hand earnings to stay compliant.
2. Understanding “Cash in Hand” Income
How Is Self-Employed Cash in Hand Work Taxed?
If you are self-employed—that is, you operate as a sole trader or in a business partnership—any money you receive from customers or clients counts as income that may be subject to tax. This principle holds true whether you’re paid via bank transfer or plain cash in an envelope. As a self-employed individual, you usually file an annual tax return (Self Assessment) with HMRC. This tax return is where you declare all your business earnings and any allowable expenses (e.g., equipment costs, travel costs) to determine your taxable profit.
Cash in hand is not “invisible.” While it might be tempting to think that your small-scale or informal cash payments will slide under the radar, the UK tax system still requires you to declare them as income. You must:
- Keep a record of your cash income.
- Track any relevant allowable expenses.
- Include these figures in your annual tax return.
If I’m Earning Cash in Hand, Do I Have to Do a Tax Return?
In most cases, yes. If your total self-employed income (regardless of how you’re paid) exceeds £1,000 in a given tax year, or you’re already filing a Self Assessment for another reason (e.g., you have rental income, or you earn above the personal allowance in your main job), you need to register with HMRC and submit a tax return.
The confusion often arises from individuals earning tiny amounts of occasional “pocket money.” Strictly speaking, if your self-employed income remains below the Trading Allowance of £1,000 in a year, you may not need to register as self-employed or file a Self Assessment for that. However, as soon as you surpass that threshold, or if you already do a tax return, you must let HMRC know about any additional cash in hand amounts.
3. UK Tax Thresholds and Personal Allowances
How Much Can You Earn Before Paying Income Tax?
Most individuals in the UK benefit from a personal allowance, which represents the total income you can earn each tax year before paying income tax. For instance, if the personal allowance in a particular tax year is set at £12,570, that means you do not start paying income tax until your combined earnings exceed that figure. If you earn above that, your tax bracket determines what rate of income tax you pay:
- Basic Rate: Typically 20% for income up to a specific threshold.
- Higher Rate: Typically 40% on income above that threshold.
- Additional Rate: Typically 45% on the highest levels of income.
Your cash in hand earnings are included in these calculations. If you have a full-time job that pays £10,000 a year and also earn £3,000 in cash from freelance gigs, your combined total of £13,000 is above the personal allowance, so you will owe income tax on the difference.
How Much Can You Earn Before Paying Tax Per Week (NIC)?
In addition to income tax, the UK tax system also collects National Insurance contributions. You might pay Class 2 or Class 4 National Insurance if you are self-employed, or Class 1 if you work for an employer. While National Insurance often gets looked at per week, the actual calculations happen each pay period (weekly or monthly) or annually for the self-employed.
If you exceed a certain threshold—known as the Lower Profits Limit or the Primary Threshold—National Insurance becomes due. For the 2023/24 tax year, for example, you start paying Class 4 NIC once your annual profits exceed about £12,570 (the exact figure can vary slightly year to year). Even if you are earning purely cash in hand for part-time side jobs, once your total business profit surpasses that threshold, NIC becomes mandatory.
How Much Can You Earn Before Paying Value Added Tax (VAT)?
Though it might not be relevant for micro-scale side hustles, if your self-employed earnings or total business turnover from goods or services (cash-based or otherwise) exceed the VAT threshold—currently £85,000 per year—then you must register for VAT. In that scenario, even if many of your customers pay in cash, you still need to charge VAT on taxable supplies, keep VAT records, and file regular VAT returns.
Notably, if your intention is to operate under the radar by only accepting cash, but your actual turnover is near or exceeds the VAT threshold, you are legally required to register, charge the correct rate of VAT, and remit it to HMRC.
4. Tracking and Reporting Cash in Hand Earnings
How Can I Keep Track of Cash in Hand Payments?
Record-keeping is essential if you receive a lot of cash. You’ll need to keep accurate records of every transaction, such as:
- Invoices or receipts for goods or services you sold.
- A basic ledger or spreadsheet noting each cash payment, the date you received it, and what it was for.
- Any relevant expenses associated with that income.
Even if your work is informal, it’s wise to ask clients if you can provide them a simple receipt or invoice. Doing so helps create a paper trail confirming the cash changed hands and prevents confusion when it’s time to fill in your tax return. Many self-employed people use online accounting tools or spreadsheets to keep track of this data. If you decide to open a separate business bank account to segregate personal from business transactions, that can also help you remain organised.
What Do You Need to Do If You Start Paying Tax?
If, for example, your total earnings exceed the personal allowance or pass the threshold for NIC, you’re expected to file a Self Assessment tax return by the relevant deadlines (31 October for paper returns, 31 January for online returns). If you only recently began earning enough cash to require filing, you need to register as self-employed with HMRC if you haven’t already done so. After registering, you’ll get a Unique Taxpayer Reference (UTR) and be able to set up your online account for paying income tax and NIC.
Failure to meet these deadlines or keep correct records can lead to penalties and interest on late payments. If you find the process complicated, consider hiring an accountant or using professional services that can handle your accounts and ensure your compliance with HMRC’s regulations.
5. Side Hustles and Small Business Considerations
How Much Can You Earn Before Paying Tax If You’re a Small Business Owner?
It’s not unusual to operate a small business or side hustle that generates modest monthly income—often in cash if you’re selling at markets, doing personal services, or offering gig-based tasks. As a small operator, the first £1,000 is covered by the Trading Allowance. That said, the Trading Allowance doesn’t override your personal allowance for income tax. If your total combined earnings (from all jobs, including your small business) exceed the personal allowance, you will owe income tax on the sum above that threshold.
Additionally, if your small business’s total turnover crosses the VAT threshold (currently £85,000 in a rolling 12-month period), you must register for VAT—even if some or all of your transactions are in cash. Keep in mind you might have allowable expenses that reduce your taxable profits. For instance, if you buy materials, pay for marketing, or spend money on essential equipment, you can usually subtract those costs from your total earnings to get your net profit figure. This net figure, not your gross turnover, is what you pay income tax on (though for VAT, you consider gross turnover).
Penalties for Not Declaring Cash in Hand Income
Reporting cash in hand earnings properly is important. Failing to declare them could lead to:
- Backdated Taxes: HMRC can investigate and demand any unpaid tax from prior years plus interest.
- Penalties: You may face financial penalties that range from mild to severe, depending on the seriousness of the oversight or if HMRC deems it deliberate.
- Criminal Action: In extreme cases, repeated or deliberate concealment of cash earnings can lead to criminal prosecution for tax evasion.
Thus, it’s far safer to remain transparent and keep detailed records so you can defend or explain your reported figures if HMRC ever inquires. Most of the time, honest mistakes result in smaller penalties, while wilful concealment might be punished more harshly.
6. Conclusion and FAQs
So, How Much Can You Earn Cash in Hand Before Paying Tax?
In the UK, there is no exclusive “special rule” that exempts cash in hand income from standard tax requirements. You may have a small buffer if you’re under the Trading Allowance of £1,000 for self-employment, but above that, or if you already file a Self Assessment, you need to disclose your cash takings. Key points to remember:
- The personal allowance (e.g., £12,570) applies to total earnings from all sources, including cash.
- If your cumulative income goes above the personal allowance, you start paying income tax at your applicable tax bracket.
- National Insurance thresholds apply equally to your self-employed net profits or wages.
- Going over the VAT threshold (currently £85,000) means registering for VAT, even if you operate mostly in cash.
Failing to declare or properly track your cash in hand earnings can lead to unwelcome backdated bills or penalties.
UK Taxation FAQs
- What if I only earn a small sum in cash occasionally?
– If you earn under the £1,000 Trading Allowance from self-employment in a tax year, you might not have to register or file a Self Assessment solely for that. However, if you have other forms of income requiring you to file a tax return, you should report it regardless. - Could I lose my personal allowance if I earn too much?
– In some circumstances, once your total adjusted net income goes above £100,000 per tax year, your personal allowance gradually reduces. So if your cash-based side hustle plus your main salary push you above that threshold, you may lose part or all of your personal allowance. - What if I register for self-employment mid-year?
– You can register with HMRC for self-employment at any point. You typically have until 5 October following the end of the tax year in which you started trading to register. If you wait too long, you might face penalties. - How do I handle multiple streams of income?
– If you have a main job on PAYE (Pay As You Earn) plus a side hustle that’s purely cash in hand, you combine everything on your Self Assessment. HMRC calculates your total tax liability based on total income minus personal allowance. - Do I pay separate National Insurance for my cash-based work?
– If you are an employee and your employer handles Class 1 NIC, but you also do self-employed cash gigs, you may owe Class 2 or Class 4 NIC on that self-employed profit. The exact rules vary, but in general, multiple streams of income can trigger multiple NIC classes. - What’s the risk if I’m caught not declaring my cash earnings?
– HMRC can demand backdated taxes, apply interest, and fine you. Repeated or large-scale concealment can lead to more significant legal trouble.
By following these guidelines, you can avoid the pitfalls of non-compliance. Whether you’re a sole trader running a small side operation or a person performing occasional odd jobs, maintaining honesty in your finances is crucial. If in doubt, seek professional advice—accountants or tax specialists can walk you through the intricacies and ensure your cash in hand earnings remain above-board.
