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Why Taking Cash in Hand Can Be a Bad Idea

excited tradie with cash in hand

Cash in hand work can seem enticing. No invoicing, no lengthy payment terms, and no need to tell the tax man. And you probably know at least a handful of people who are conducting “cash only” business without declaring it.

But in reality, cash jobs are a bad idea for any building inspector or pest control professional. By conducting illegal business, you could be exposing yourself to enormous risk. Here’s more about the pitfalls of cash in hand as payment for work.

Is it common to do work for cash in hand?

It’s hard to estimate exactly how big the “cash in hand” market is. This is because, by nature, the income often isn’t declared. Official estimates have put the figure at approximately 3% of GDP, or a whopping 50 billion dollars per year.

It’s not uncommon for customers to offer cash, especially if they’re hoping for a discount in return. And it can be tempting, especially if you think you might lose the job if you don’t accept it.

Anecdotally, there’s plenty of evidence that the cash job industry is booming. So why shouldn’t you join in?

Is cash in hand work legal?

It’s important to note that a cash job isn’t necessarily illegal, or even bad. Cash is legal tender, and you can certainly complete a job, send an invoice, and receive your payment in cash. You’re not risking prosecution as long as you record it on your books and declare it as income. That is, you can accept cash but should still do everything through official channels.

However, if you’re thinking of taking cash in hand as a way to increase your income (without the authorities knowing about it) then you are breaking the law. To be clear, it’s the cash jobs that aren’t declared and don’t appear in your books which are problematic.

Here’s why.

The drawbacks of cash in hand

When it comes to the drawbacks of doing work for cash in hand, there are a few things to keep in mind. Let’s look at our top ones.

Firstly, if you’re taking cash without issuing receipts or invoices, it will impact your sales management and measurement. Without accurate recording of sales, profits, expenses and so on, it becomes much harder to track your results (among other business aspects).

It also becomes harder to properly manage expenses and payroll, work out the return on investment (ROI) of your marketing efforts, and set appropriate goals for the future.

Secondly, you’re exposing yourself to risk. If you have staff on your payroll and they’re taking cash payments on your behalf, how do you know they aren’t pocketing extra cash? And there’s also the risk that should a disgruntled employee leave or be dismissed, they could report your business’ cash operations to the authorities.

Plus, if you were ever to sell your business, not recording cash deals would undervalue it. Potentially, you could undervalue it in a big way. Prospective buyers would pay less for it because you’ve given them no reason not to.

In a similar vein, if you’re not declaring all your revenue on your books you’ll find that you might not qualify for a loan down the track (or would qualify for a lesser amount). This might not be a problem now, but could limit you in future. Particularly if you have plans to expand and grow your business.

lots of cash - australian 100 dollar notes

It’s illegal!

The last – and most obvious – drawback is that you’re potentially breaking the law. Put simply, receiving payment for work you don’t declare is illegal. And if you’re caught, there will be penalties to pay. These penalties can be harsh, so it’s always best to make sure you keep any business dealings above board.

This includes simple jobs for friends or family members. Read about this case where not declaring cash jobs led to one tradesman owing the tax office nearly two million dollars.

How would you get caught? The Australian Tax Office has plenty of checks and measures to make sure you’re declaring your income legally and completely. There are ways for the community and customers to report you. If you take a job that’s cash in hand, you could be audited, and they can even conduct bank checks.

Importantly, if you offer a cash discount to a customer and don’t declare the income, you might be left with no recourse if something goes wrong. If a customer decides to sue you for bad quality of work or report you to the ATO, you could find yourself in a very tricky situation.

Which brings us to the next question – is your insurance still valid if you’re paid in cash?

Insurance implications

As mentioned earlier, it’s important to draw a distinction between a cash job that’s conducted through the correct process and cash in hand work done “off the books”.  

If it’s done off the books, your insurance likely won’t cover you. Because after all, the job didn’t even happen in the eyes of the law. That means if you do a pest treatment and later find a customer complaining about their termite problem, you could be in big trouble. Particularly if you also haven’t provided the paperwork required by Australian Standards.

Firstly, they could threaten to report you to the ATO unless you fix any errors – you’ll get in a lot more trouble for doing the cash job than they will be for negotiating a cash deal. Secondly, they can sue you for damages and usually your insurance would cover this (unless you’ve let your insurance lapse) but your provider may choose to reject claims for jobs completed illegally.

Instead, keep everything above board. You can increase the amount of money you’re taking home by making the most of tax deductions for your business, reducing your business costs, looking at marketing ideas to generate more business, and implementing a whole host of other strategies.

We’d also strongly suggest checking you have adequate professional indemnity insurance and general liability insurance should something go wrong. Is it time to contact us for a quote?

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