Employed or Self Employed? and Cash In Hand Work

Saffy345

Hello all,

I was brought up wonky and with bad advice and sentiments from my parents (how to dodge tax, how to stay out of the system, they freak out at the sight of paperwork etc) and, inevitably, this rubbish understanding and upbringing of how things works has truly bitten me in the bum.

To cut a long story short, I truly understand the need now to inform HMRC of my earnings, even though I earn well under my personal allowance, as I would like to be considered a self supporting independent, to enable me to study or get a loan one day...

But I feel ill-equipped about how to get advice as I really can't think of anyone around me who I can ask who isn't just a bit dodgy?

I started a job earning £60 cash in hand each week in April, after signing off (hopefully for the last time!). My employer said they'd put me through payroll once they set up PAYE (they are a brand new business) but they are not getting round to doing it. Now they are saying that they want me to become self-employed and sort out my own taxes... but from reading on HMRC's website, my position with them make me an employee. Is it possible to invoice them for 8 hours work as a bar woman each work, and then declare this, or must they put me through PAYE?

I have also just started a new market job, where I am paid £45 cash in hand each week. I enquired about PAYE last time I worked and from the strange answer I got, I think it turns out these guys can't put me through PAYE as they have no intention of setting it up, as they are not declaring how big the business is or something like that. Why can't they just set up PAYE? Is it really that bad for them?

I am thinking of becoming self-employed and sorting out my own taxes just to keep these jobs, as I am very keen to support myself from now on. Plus, these jobs pay a good hourly rate and are both in line with my future career aspirations. I enjoy them a lot and find them fulfilling, therefore I can see myself sticking with them for a while.

Is it possible to register self-employed and put the cash from these jobs into my bank account and declare my earnings that way?
Is there a way to do this without stating which company pays me, and if not, and I do declare the company name, will they get in lots of trouble?

I know there are lots of people who would say 'duh! just don't declare the cash!' but I'm sick of this mentality! I just want to be straight and for it to be documented that I am supporting myself.

Please don't judge me. I am trying my hardest to break out of some backwards anti-bureaucratic upbringing. I do not want to be a criminal but at the same time I do not want to turn down jobs, as I was job searching for over 6 months before... I don't want to sign on again. I was basically raised by the government (single mum was on benefits and I had to beg my school for my own uniform!) and I don't want the same problems for my children. I want to be able to support a family myself one day, it would make me more proud than anything else I can think of.

Thank you very much, any friendly and honest advice appreciated.

Saffy

Pupnik

Hi Saffy, good for you for wanting to do things above board, you might be worse off financially (when you earn enough to pay tax anyway) but at least, as you say, it will help you in future if you want to apply for a mortgage, get a pension etc.

You will need to contact HMRC to register as a sole trader. You are no doubt right that the people you are working for should be employers but sadly there is not a lot you can do about it because they could probably find someone else to take the job cash in hand without worrying about paying you holiday, employer's NI etc. I am in a similar situation, 'self employed' working 9-5 5 days a week for the same employer.

Have you read HMRC's guide to going self employed?
http://www.hmrc.gov.uk/selfemployed/register-selfemp.htm

It may not be important just yet while you are earning a fairly low amount, but when you know you are above the tax free limit please make sure you set aside the money you need to pay your taxes, there is a calculator linked to in the above guide which will tell you how much tax you would be expected to pay - 0 at the moment but you never know how quickly things will take off for you

As for some of your other questions, as far as I am aware you would not need to actually pay the cash into the bank if you don't want to, although if you do want to apply for a mortgage/loan they would expect to see money going in so it might be a good idea for that reason. Keep records of all the money you earn (I use a really easy programme called QuickBooks, but you could make your own spreadsheets in Excel) so that you know exactly what you are earning. You will need to declare it when you do a self assessment, if you have a tax inspection you would be expected to produce more details but otherwise they won't know where the money is coming from so it is unlikely you would get any of your 'employers' into trouble. Perhaps someone with more knowledge/ experience will correct me though.

Good luck

PlutoinCapricorn

It is good that you want to get things sorted out and operate legally not under the radar; it is also very good that you want to investigate everything before you make any decisions and that you are looking at HMRC's website, which is the source of the rules, and coming on here to get reliable information. https://www.businesslink.gov.uk is another good website for the self employed.

Your post raises many issues.

You have discovered that some 'employers' are trying to evade responsibility by making people responsible for their own tax and NI; that way, they need not worry about sick pay and holiday pay etc. nor need they have the bother of running a payroll. HMRM is actively targetting market traders and others who pay cash in hand. but that is their problem not yours.

In your position, I would register as self employed. You could call yourself a "portfolio worker". You can start paying NI at around £2.60 per week even if you qualify to claim exemption on the grounds of low earnings. I would certainly pay in all earnings to get a paper trail, and log everything on a spreadsheet. Invoicing your clients is a good idea too. Your first tax return would cover 2012/2013, and would not be due until Jan 31st 2014, which gives you plenty of time to get things straight. HMRC do free courses on completing tax returns. Unless you earn over £60k, HMRC just want your total income, expenses and profit not the details of how much you earned from whom, but you need to keep good records just in case.

colino

I would follow the advice above and congratulate you for trying to get legit, but unless you are working only a handful of hours, the people paying you "cash in hand" are ripping you off too.

dktreesea

The employers don't need to register for PAYE. For starters, you don't earn enough from either job for PAYE to be payable. There are all kinds of exemptions from paying NICs and PAYE, sick leave and all the rest of it for employers who just employ casual labour.

Registering as self employed is a good thing. Just put what you do, i.e. market trader/bar person. In an ideal world, you would invoice the employers for your hours but I really wouldn't bother. They can still claim against their taxes anyway for casual employment. They aren't breaking the law. You, however, have an obligation to declare your earnings.

Since you are likely to go over £5k a year, you should pay class 2 contributions for national insurance, once you have registered for self employed. (earnings below that and yu would need to apply for an exemption). There is good reason to do this, even though it only works out at £2-£3 a week, because, provided you are over £5k a year income, then this will count as a year towards your state pension.

So, having registered as a sole trader, you need to file a tax return each year. At that level of income you won't need to pay income tax, but you should still file one.

Once you are registered as self employed, if you are over 25 you become eligible for working tax credits. I would advise you to claim for these, if you expect your income to stay at current levels.

Saffy345

Wow, all the replies you guys have taken the time to offer are really helpful to me and I am going to go for it, and I'm going to pay my money into my account as I find it easier to manage my finances and save that way.
With it all in cash I feel a bit flustered!

Thank you for your answers, I feel a lot better and I feel really happy that I'm going to be able to be a more legitimate person! How can people live with a 'looking over your shoulder' feeling for their whole lives? It must feel awful!

Thanks again, this has been really helpful.

All the best, Saffy

Saffy345

Oh, I have one more question... I can't remember exactly how much I have been paid in cash over the past two months... to the penny or pound. Do you think I should round it up and take note for when I eventually complete this years tax return?

PlutoinCapricorn

Firstly, I agree with you about living with the possibility of being caught always hanging over you: HMRC might find you while they are investigating the employers for example. I just don't know how people can do this. I am sure that you will feel much better when you are legal, and this will be in your best interests in the long term.

As for your income, can your employers help? Surely they are keeping records. As you are not earning enough to pay tax, an estimate is good enough. Paying all earnings into the bank and recording the details is good practice for the future.

One point I should mention is that there are boxes on the tax return where you can explain anything that might otherwise make HMRC curious. For example, how you are managing to live on such a low income. This raises another point: normally self employed people ask for around 1/3 more than people on PAYE doing the same work would get. This is supposed to help them get through times when there is no work. It seems to me that you are getting the worst of both worlds: you don't get the sick pay, holiday pay that someone on PAYE would get, and you don't get the higher rates that self employed people command. Something to think about.

Saffy345

Yes I agree, there are many downsides to not going through PAYE, however I think for know becoming self-employed is the best way to work with what I do have, which is two secure and happy jobs. I am starting University study in September which may change things up a bit anyway, and I have requested to both employers that they please put us through PAYE. They have both said that they'll look in to it. I've registered self-employed anyway so for now that will have to do! Thank everyone xxx