Hi NZ accounting fans!
Let’s talk about cash jobs. Also known as ‘cashies’ in the Kiwi vernacular. If you’re a small business owner, I’m sure you’ve heard of ‘cashies’. Especially if you’re a builder or have dealt with tradespeople.
Cash payments are when an individual/business owner insists on receiving a cash payment for a job done. The most classic example of this is the builder who fixes your front porch and asks for $1,000 – cash only. There are lots of reasons why people prefer cash over electronic funds. We’re not going to discuss that issue in this article though. The bottom line is – a lot of tradies who do cash jobs don’t declare them to the IRD.
This means that essentially they’re getting tax-free income. And that’s just not right (and downright illegal). There’s nothing wrong with taking cash jobs, as long as you declare it to the IRD. If you or any of your suppliers engage in cash jobs – here’s why you should be declaring them to the IRD.
You will get caught and prosecuted for not declaring cash jobs
I get some prospective clients who say to me: ‘bah, surely IRD wouldn’t care about chasing down little ‘ol me and my cashies – I’m sure I can get away with this!’. Truth is – you can never be certain. IRD receives about 7,000 anonymous tip-offs about ‘cashies’ each year. When they follow up on these investigations, they inevitably catch their culprit.
Not declaring cash jobs is considered tax evasion. I’ve got a handy excerpt here for those of you who think that the punishment for tax evasion is a slap on the wrist:
A person who knowingly does not file tax returns when required to do so by law commits an offence against section 143A of the Tax Administration Act. A person convicted of such an offence is liable for:
- On the first conviction a fine not exceeding $25,000,
- On the second and any other subsequent convictions a fine not exceeding $50,000.
In cases where a person is considered to have knowingly failed to file a tax return with the intention of evading tax (section 143B of the Tax Administration Act) the person may be liable for:
- Imprisonment for a term not exceeding 5 years; or
- A fine not exceeding $50,000; or
- Both.
The good news is that IRD won’t prosecute you if you come clean and declare your cash jobs. You will have tax to pay (and some penalties). But if you’re just a small time tradie, I’m sure the tax will be a lot less than the potential fines you could be looking at.
Your clients will declare your cash jobs to the IRD
You see, it’s in your clients’ best interest to declare any cash jobs that they pay you for. This is because any work that they pay you, they can claim as a tax-deductible expense. This is especially true if you’re doing work for a business owner.
For example: JJ is a tradie doing work for a construction company, Ruakura Building Ltd. JJ insists on getting paid in cash for the $30,000 worth of work that he’s done for Ruakura Building over the year. The managers of Ruakura Building code the $30,000 cash paid to JJ as contractor fees, to claim for tax deductions.
A paper trail is then created. Once a client claims their contractor payments as an expense, the IRD has a lead to follow. One likely scenario is that the IRD could ask Ruakura Building Ltd to provide a receipt of the $30,000 paid to JJ, failing which, they’d have to provide JJ’s contact details to IRD so the IRD can verify the expenses trying to be claimed. Either way, if JJ has not been declaring this cash income, IRD will know of it.
Ruakura Building isn’t being mean to JJ by declaring these expenses – they’re just doing what any business owner would do. That is, to claim all tax deductible expenses they can.
Only doing cash jobs hurts your reputation
The most important asset any business has is their goodwill and brand reputation. If you insist on doing cashies for every job that you do, eventually word will get around. Remember – business owners want to be able to deduct expenses that they pay to their tradies. Its harder to claim expenses for payments to a tradie that does cash jobs as opposed to a tradie that issues a professional invoice and accepts credit cards and bank transfers.
Also, doing cash jobs implies that you don’t have a clear system of outlining your job scope and hourly rate. Businesses don’t want to deal with uncertainties when it comes to billing jobs. Insisting on cash payments only shows that you’re unprofessional at best or shady at worst.
That being said, doing the odd cash job for friends and family should be fine – but it should never be the rule when it comes to accepting professional work.
What about clients who insist on paying only cash?
You may encounter clients who insist on paying cash for the work that you do. Often this happens because they want to get out of having to pay you (as the honest tradie) the GST fees related to your services.
My advice is to just say no. Remember that you are a trained professional (builder, plumber, electrician, joiner, etc.). Your work has its value. If a client insists on not paying the GST fees on your service, that means that you end up having to absorb the GST fee into your work, which cuts into your margins and devalues your work.
You only have a finite number of hours in a day. Its better to spend that time on clients who value your time instead of clients looking to cheat the system and devalue your work in the process. Turning down this sort of work may hurt in the short term. But in the long term, you will be glad to be rid of clients who don’t respect your time.
By the end of the day, it comes down to honesty. Do the right thing, declare your cash jobs. Your conscience will be clearer, you will be abiding the law and your business reputation will be enhanced. Most of all, doing the right thing will undoubtedly help you:
Stay positive!