April’s looming National Insurance rise has sparked fears of a rise in cash-in-hand payments (Image: Getty)
Thousands of bar staff could be paid cash-in-hand as pubs struggle to survive the fallout of Rachel Reeves’s punishing Budget tax raid.
The Chancellor’s looming National Insurance hike will see businesses already pushed to the brink forced to find extra cash they can’t afford.
Experts think the net result will be a burgeoning cash economy in which employees are paid under the counter rather than through the till.
One former employee said: “From April the minimum wage will be £12.21 an hour if you are 21 so for an eight-hour day that is £97.68. At the same time the new NI lower limit is £5,000 an ear which is £96.15 per week.
“You can therefore see that an employer will have to pay 15% NI on just the minimum wage for one day.
“I don’t have any evidence, but it isn’t much of a stretch to think businesses with part-time workers and cash going through might be pushed to pay cash in hand just to survive.”
The battered hospitality industry is still reeling from the effects of hugely damaging pandemic lockdown restrictions.
In 2023, nearly 400 pubs across the UK closed, a rate of almost two a day. Last year the number of pubs fell below 39,000 for the first time.
The source added: “Just for balance Ms Reeves did increase the exemption for small employers from £5,000 to £10,000 but I would estimate anyone with more than three full-time employees would fall foul of the increase.”
Last orders? Experts think the Budget tax raid will see businesses pay employees cash-in-hand (Image: Getty)
It is not illegal to pay someone in cash in hand but there are tax implications for both the payer and the payee.
Businesses must deduct the correct amount of tax and NI contributions, while workers must declare any cash received to for tax purposes.
It is now thought that as a direct result of announcements in October’s Budget, the first by a Labour government in 14 years, there could be a massive rise in the black economy where workers are “hidden” from the books to avoid being clobbered by the taxman.
From April 6 the earnings level above which an employer begins to pay National Insurance on behalf of their employees is being reduced from £175 per week to £96 per week leaving them liable to pay more money to the Treasury.
The Chartered Institute of Taxation said: “For someone earning £20,000 in 2025/26 their employer will pay £2,250 in secondary Class 1 NICs. That is an increase of £746 (or nearly 50%).
“For an employee earning £40,000 in 2025-26 the employer will pay £5,250. This is an increase of £986 (or about 23%). For an employee earning £60,000 in 2025/26 the employer will pay £8,250. This is an increase of £1,226 (or about 17.5%).”