Cash-in-hand for cleaner - penalty for employer?

Are there penalties for employing a cleaner and paying cash in hand?

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An elderly aunt pays cash-in-hand to a part time cleaner. I recently discovered that the cleaner is not declaring income to HMRC. There is no question she is an employee. My aunt provides all the cleaning materials, tells her what to do, and would not accept a substitute. My aunt couldn't care less about this but I am worried that she might be subject to penalties if the arrangement is ever discovered. She won't take any notice of anything I say if it doesn't fit her own world view, so I thought I would look on the HMRC website to find out what my aunt's's penalties might be if her employment of the cleaner is found out. As you can guess, I couldn't care less what happens to the cleaner (she deserves to be found out) but I am worried about my aunt. All I can find is information about starting new employees. I am aware that because the cleaner only receives (on average) £50 per week my aunt doesn't have to run a PAYE system but is she risking penalties because she has not disclosed the employment to HMRC? I am a retired businessman and neither my aunt nor I employ an accountant. Can anyone point me to HMRC's information about penalties for not declaring an employee?

Replies (41)

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By Paul Crowley
19th Nov 2020 12:47

The tax due is 20% on a BR coding
'employee' did not declare that this is only employment.

Penalties based on the unpaid tax of £520 per annum plus a load others for late notification and late filing

If you are satisfied that this is employment, all fault is with the employer
This employee could have 20 such employments. Not her obligation to sort out who stops the tax.

If employee claiming Universal Credit then credit over paid is a direct result of employer failing to file

If cleaner is an employee, cleaner has done nothing wrong

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Replying to Paul Crowley:
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By C.Y.Nical
19th Nov 2020 17:49

Thanks Paul. I think you are saying that my aunt could be subject to penalties. But she's a stubborn o** thing and she won't take any notice of me or, sadly, you. Do you know where I can find HMRC's official warning about the penalties you have mentioned so i can print it off and show her?
I've also replied generically below.

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By Merseyside Mike
19th Nov 2020 12:53

Is the cleaner actually an employee? Is she employed under a "contract of service" or a "contract for service"?

Whilst a live-in nanny or similar would be working exclusively for the client I would expect most part time cleaners would have multiple clients and would clearly be working for their own benefit.

Whilst your aunt may not accept a substitute, isn't that a personal choice similar to only wanting a particular hair stylist? It's not the same as me not turning up for work and sending somebody else in my place and expecting my employer to accept it.

A cleaner could provide her own materials, but would charge the client extra so it's not the same as an employer expecting me to buy my own laptop in order to work.

I pay my window cleaner for a service but he is clearly not my employee, and similarly, a pay a gardener to cut the grass once a fortnight but again, he is not my employee.

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By CJaneH
19th Nov 2020 13:02

I do not believe your aunt is at any risk of HMRC applying the law.

I had a client who worked in a bread shop/cafe. She handed in her P45, quite rightly assumed she was employed and business owner would operate PAYE. She was paid by bank transfer, so very clear trail.

HMRC decided she was self employed and must submit a tax return for the relevant two tax years. Despite my letters explaining that she worked on employer's premises, under their instructions, on a hourly basis HMRC would not budge. The business was no longer in existence by then.

As no tax was due, though would be an NI cost, client and I gave in and submitted the tax returns to get rid of the problem.

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Replying to CJaneH:
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By I'msorryIhaven'taclue
19th Nov 2020 13:43

I've had the opposite decision to that, admittedly a few years ago, whereby a "self-employed" client was deemed by HMRC to be an employee of the single company she had worked for and invoiced for many years.

In an act of sheer stubbornness HMRC refunded to her all of the schedule D tax and class 4 NI she had paid (£tens of thousands over the years) in spite of the fact that the (deemed) employer company was in the early throes of creditor-led liquidation and HMRC were unable to cleanly recover Sch E back-tax and NI.

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
19th Nov 2020 15:55

Amazed HMRC person could be so stupid.
I always accepted HMRC view is based on getting more money in
Hence, if employer now bust, employee must be self-employed.
If self-employed now bust, must be employee

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Replying to Paul Crowley:
RLI
By lionofludesch
19th Nov 2020 17:19

Paul Crowley wrote:

Amazed HMRC person could be so stupid.

Why's that ?

I had a case several years ago, late VAT registration, customer was open to paying the VAT, HMRC suggested FRS, net loss to UK revenue about £3000.

No doubt the officer was on some sort of performance related pay.

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Replying to lionofludesch:
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By Paul Crowley
19th Nov 2020 17:42

We had one as well, pretty much the same.
Vat officer put the FRS forward
Client even managed to get most of the output VAT paid by clients, so made a profit from registration.

I can understand the FRS suggestion as only one side of bank account to look at by VAT officer, resolved so much faster

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Replying to Paul Crowley:
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By Wanderer
19th Nov 2020 17:47

Years ago sent some post dated cheques, dated over the following 3 months, for a VAT liability. HMRC sent them back saying that they were unacceptable. Six months later company went into liquidation & HMRC got nothing!

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Replying to Wanderer:
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By Paul Crowley
19th Nov 2020 18:54

Idiocy way beyond the call of duty

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
19th Nov 2020 18:04

It's nuts, isn't it! I had a similarly benevolent VAT official overseeing a late VAT registration, who actively encouraged the client offset his input VAT all the way back to the registration date (which was a few years'-worth, many £thousands). My theory is the VAT arm have a general dislike for their employer.

Re: our self-employed client who was deemed an employee (as a result of a payroll inspection, no less) HMRC needed a push to cough up the Sch D tax refund. And given they'd already hit the employer company with a six-figure demand as a result of that inspection you'd think they might have guessed that that would be the end of the company (and reverted to self-employed status after all).

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
19th Nov 2020 18:12

I still think my PRP guess is on the money.

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By sculptureofman
19th Nov 2020 15:39

I think the risk to your Aunt, and to the cleaner is precisely zero

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Replying to sculptureofman:
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By Paul Crowley
19th Nov 2020 15:58

Superb

Will tell the gardener and windows man to stop submitting tax returns

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Replying to Paul Crowley:
the sea otter
By memyself-eye
19th Nov 2020 16:59

I vote zero also.

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Replying to memyself-eye:
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By lionofludesch
19th Nov 2020 17:20

memyself-eye wrote:

I vote zero also.

Me too.

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Replying to sculptureofman:
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By Tax Dragon
19th Nov 2020 17:29

Has COVID taught us nothing? There's no such thing as precisely zero risk. Those that underdeclared income/payments to employees had less support.

Not to mention that someone might report the situation.

I actually thought the question was about responsibility though, not risk.

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By C.Y.Nical
19th Nov 2020 17:46

Wow, lots more replies than I expected. Thanks.
I'm sorry that my question opened up a debate about whether the cleaner is an employee or self-employed. I'm well aware that issue is extremely complicated and I would prefer not to get into it.
So to put my question again, let's assume the cleaner is an employee and all I really want to know is what HMRC say about whether my aunt as the employer is subject to any penalties if she pays cash-in-hand to the cleaner knowing all the time that the cleaner is not declaring this income to HMRC.
Some of the replies state zero risk but I would really like to know what HMRC say about this and as I began by saying I can't find anything.
There must be a lot of people doing this, so I'm surprised it's so hard to find HMRC's point of view.

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Replying to C.Y.Nical:
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By lionofludesch
19th Nov 2020 17:58
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Replying to lionofludesch:
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By C.Y.Nical
19th Nov 2020 18:20

Thanks, but your link refers to penalties for employers who are registered for PAYE and fail to comply with the rules.
In my original question I said: 'I am aware that because the cleaner only receives (on average) £50 per week my aunt doesn't have to run a PAYE system but is she risking penalties because she has not disclosed the employment to HMRC?' I checked again and she doesn't have to register ( I used the tool here: https://www.gov.uk/register-employer).
It seems to me that if my aunt doesn't pay the cleaner £120 or more a week,and has no knowledge of the cleaner getting a pension or already having another job, she doesn't have to do anything and there is in fact no penalty. Of course the cleaner might have other jobs but my aunt wouldn't know anything about that.

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Replying to C.Y.Nical:
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By Paul Crowley
19th Nov 2020 18:45

https://www.gov.uk/register-employer/y/no

However, you’ll need to register if any of your employees:

start earning more than £120 a week
get a pension or another job while still working for you
start getting any expenses or benefits

Watch out for simplistic HMRC web items
The advice presupposes the employer to have confirmed with employee that the employer is the ONLY employer and that the employee has no other income

I stand by my first post. This person needs to be on a BR coding if she is an employee
There is no such thing as untaxable wages, or 'casual' wages that bypass the PAYE system.

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Replying to C.Y.Nical:
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By lionofludesch
19th Nov 2020 19:09

" Of course the cleaner might have other jobs but my aunt wouldn't know anything about that."

What you overlook is that she's obliged to ask.

Did she ask her cleaner to complete a starter form ? I'm guessing no.

Does she give the cleaner payslips ? I'm guessing no.

Does the cleaner invoice your aunt for the work she does ? I'm guessing no.

Does the cleaner get paid holidays ? I'm guessing no.

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Replying to C.Y.Nical:
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By Paul Crowley
19th Nov 2020 18:59

You keep saying cash in hand as is it is a magic device.

Most people use the term to imply not taxed, not declared and deliberate knowing evasion that can never be proven

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Replying to C.Y.Nical:
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By Paul Crowley
19th Nov 2020 19:02

Zero risk means nobody will find out, and even if they did HMRC do not look good taking money from a poor confused pensioner

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By C.Y.Nical
19th Nov 2020 20:04

When I asked my question I thought I'd be told it's been asked 100 times before and I should have been more assiduous searching Accounting Web.
Nope.
I'm amazed by the number of replies. Still absorbing them in fact.

Supplementary questions:
(1) What happens to my aunt if she doesn't ask any questions and just carries on paying the cleaner without issuing a starter form?
(2) How many elderly aunts issue starter forms to a new cleaner?
(3) Is my aunt the only person in the DUK who pays a cleaner cash-in-hand?
(4) Could some very simple - it would have to be simple - system be created to assist elderly aunts and their cleaners and everybody else who employs casual domestic help to be compliant? Is that too much to ask?
(5) How do you know I'm not an HMRC investigator testing the response to this question?
(PS I'm not)

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Replying to C.Y.Nical:
RLI
By lionofludesch
19th Nov 2020 20:15

You're not looking for advice.

You're looking for comfort.

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Replying to lionofludesch:
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By C.Y.Nical
19th Nov 2020 22:24

Actually I wasn't looking for comfort, I was looking for (I'm quoting from my original post) 'HMRC's information about penalties for not declaring an employee?'

I think I'll leave it there. Thank you to everyone who took the trouble to reply.

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Replying to C.Y.Nical:
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By lionofludesch
19th Nov 2020 23:06

The penalties are for not deducting the tax.

Which you decided weren't relevant.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
21st Nov 2020 14:46

Another stray Christian mauled by the Lion :)

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Replying to C.Y.Nical:
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By Matrix
20th Nov 2020 06:49

If the employee had another job then any payments would be considered net and so it is not just penalties but income tax would also be due.

Get bespoke advice if you are so concerned.

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Replying to C.Y.Nical:
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By Matrix
20th Nov 2020 07:07

C.Y.Nical wrote:

(5) How do you know I'm not an HMRC investigator testing the response to this question?
(PS I'm not)

You have clearly misunderstood the replies.

The replies which say the risk is low - they mean the risk of HMRC treating the cleaner as employed rather than self-employed.

None of the replies are saying that it is fine to receive cash and not declare it.

(This suggestion is pompous and uncalled for when your have had so much free help.)

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Replying to C.Y.Nical:
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By I'msorryIhaven'taclue
21st Nov 2020 15:06

I'll answer number your question #3 with a resounding "no".

I know you've professed good intentions, but you risk all manner of associated issues for your aunt. For example, does she pay her cleaner the minimum wage of £8.72 an hour? Does her insurance cover having an employee in her home? Are either of them infracting Covid restrictions?

And just how grateful do you imagine your aunt is going to be when her employee is off on her four weeks' hols / 3 months' furlough / 6 months' maternity leave? Unless you are prepared to put on your pinny and go cover her duties then - and I mean this in the nicest possible way - try minding your own business.

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By Tax Dragon
20th Nov 2020 07:10

My mistake, i misread your question. You weren't talking about your aunt's responsibilities at all. The question as you've asked it has indeed been asked in here before.

I've reread the answers too. I hope others don't mind me summarising.

As lion retorts above, the penalties really depend on whether tax should have been deducted. (And see the other threads for more on that - if your aunt should be deducting tax but isn't, penalties can mount up.)

Had your aunt done what she should've, the answer to deducting tax might well have been no. The simple solution you wanted.

What Paul says is that, because she skimped on the initial paperwork, HMRC has not told your aunt not to deduct tax, therefore she should've. This exposes her to a risk that could have been avoided simply and straightforwardly.

Read the answers you've had again. And put something like "failure to register employer" into a search engine for more.

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By K1mb3rl3y
11th Feb 2022 15:03

Reading these replies makes me wander if any of you have ensured that babysitters for your children declare their income. It is exactly the same thing - a cash in hand job. Do you expect your children’s babysitter to pay tax on the £50 you gave them after your night out? At what point would you register yourself as an employer to your babysitter? Going out once a month? Twice? 4 times?
Be realistic.
You don’t employ a window cleaner or a gardener. Or a plumber. I could go on. It’s their responsibility as a service provider to declare their income when a job is completed in your home. You are not responsible for checking if they pay tax and NI. Exactly the same for the cleaner. If they choose to not declare their income, that’s on them not your aunt.

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Replying to K1mb3rl3y:
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By Hugo Fair
11th Feb 2022 16:04

TBH I CBA to re-read all the entries above ... but you are so wrong, if only because you make statements without any qualification (like "You don’t employ a window cleaner or a gardener"), which may or may not be true depending on circumstances.

No-one has suggested that the person issuing 'a contract' must check what their contractor does (with regard to tax or NI or anything else).

However they are responsible for determining whether that contract constitutes employment or not ... and if it does then making payment via PAYE (as so many housebound people, for instance, have to do in order to pay their various carers).
If they determine that it is not employment, then they are still open to that being challenged later by HMRC.

None of this may be understood or applied in a lot of day-to-day cases, but that doesn't make it any less true (especially the liability of contract issuer).

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Replying to Hugo Fair:
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By K1mb3rl3y
11th Feb 2022 16:41

Of course you can technically employ a gardener and window cleaner as a business but that was not the point of my comment. if I wanted to be pedantic I would have added a clause in my statement that I was referring to those used as a service in your home.
if aforementioned window cleaner and gardener has their own ‘business’ then you are not their employer. You are paying for a service. Of course this is the same for the cleaner, since cleaning is also a service from a business. (Wether they are registered as such is a different story of course, and wether they are part of a larger organisation or a sole trader is besides the point).
Calling HMRC for every bin cleaner, window cleaner, plumber, babysitter, gardeners services I have used on a regular basis to ensure that I am not their employer would be ridiculous to say the least.

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Replying to K1mb3rl3y:
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By Hugo Fair
11th Feb 2022 23:16

Again ... statements without any qualification or, in this case, rhyme or reason.

No-one has suggested that you call "HMRC for every bin cleaner, window cleaner, plumber, babysitter, gardeners services I have used on a regular basis" ... indeed HMRC provide no such facility allowing you to do that anyway ... so why the strong repudiation?

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Replying to Hugo Fair:
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By K1mb3rl3y
12th Feb 2022 08:44

You’re completely missing the point.
I give up.

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By More unearned luck
11th Feb 2022 16:45

"There is no question she is an employee."

A bold statement, especially when made on the same day that Justin posts a link to the latest IR35 case (Adrian Chiles). As Justin says it took the judge 335 paras to decide the question plus (as Justin didn't say) five annexes.

Your certainty that she is your aunt's employee is at odds with your expectation that the cleaner should be the one declaring the income.

If the cleaner doesn't work for anyone else then her income is too little to attract tax and NIC.
If she cleans for other people then the third step of the Ready-Mix concrete test might conclude that she is SE.

If the cleaner is committing tax fraud how come she confessed to you?

Interestingly the NIC rules make a distinction between 'workers' who clean commercial premises and domestic cleaners.

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Replying to More unearned luck:
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By Hugo Fair
11th Feb 2022 23:11

OP posted on 19th Nov 2020 ... but thread was resuscitated, without any sense of logical follow-on, leading to the usual confusion (in this case that Justin's post was 15 months later than OP).

Nevertheless, totally agree with your practical responses!

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