Is it really so wrong to pay tradesmen in cash?

Today’s headlines about cash in hand payments make interesting reading, especially for those of us engaged in the business of advising on tax matters.

Paying contractors and tradesmen such as plumbers, cleaners and handymen cash in hand is still extremely common it seems but can it ever be justified?

As the buyer of services, it is not strictly your legal responsibility to ensure the tradesmen’s tax and accounting affairs are correct. Of course if you are paying an employee, such as a nanny, it is definitely your responsibility to ensure that the tax and NI records and obligations are met.

However, Treasury Minister David Gauke has different ideas for contractors and tradesmen. He claims that we have a moral responsibility to satisfy ourselves that we don’t aid the plumber if we believe he is trying to avoid tax. This could be agreeing to his request for cash “so I can lose the VAT” or “just not declare it”. By anyone’s standards, it’s hard to argue ignorance to tax avoidance under these circumstances and there may be a moral case to answer if we pay cash in full knowledge of ‘tax dodging’.

So when is it acceptable to pay in cash and not feel guilty? Perhaps when you are satisfied the tradesmen is not required to register for VAT? Or what about the weekly cleaner who can’t afford the bank charges on all those cheques and doesn’t take chip and pin? Surely there are perfectly honest tradesmen with immaculate tax records who deal in cash simply because it suits them. The Treasury isn’t losing anything so why change?

It is a complex area but make sure you don’t fall foul. Ignorance isn’t always a suitable defence against tax avoidance so make sure you understand your obligations in this area.

Julia Whelan, tax partner at Curo Chartered Accountants can be contacted on [email protected] or 01527 558539 to discuss this further and help you understand how best to handle the tricky area of cash-in-hand payments.