The Bank of England states that many people are confused about what legal tender means and that “it is more about settling debts than how you pay for things in shops”… so what is it then?
What is Legal Tender?
According to the Bank of England, “Legal tender has a narrow technical meaning that will rarely come up in everyday life. The law ensures that if you offer to fully pay off a debt to someone in a form that is considered legal tender – and there is no contract specifying another form of payment – that person cannot sue you for failing to repay.”
In England and Wales, legal tender is restricted to Royal Mint coins and Bank of England notes. However, in Scotland and Northern Ireland, legal tender is just Royal Mint coins, with no banknotes included. Debit cards, cheques and contactless payments are not classed as legal tender even though they are commonly used as forms of payment.
All UK coins, whether they are circulating or not, are classed as legal tender, but when it comes to coins, there are further rules when it comes to what exactly is classed as legal tender:
- 1p and 2p coins are only legal tender for amounts up to a maximum of 20
- 5p and 10p coins only count as legal tender for amounts up to £5
- 50p coins are only legal tender for amounts not exceeding £10
- £1 and £2 coins are legal tender regardless of the amount they are covering
So Why is All of this Relevant?
There is a common misconception that if your money is classed as legal tender, then businesses are obliged to accept it as payment for goods and services. However, this is not the case. Businesses are within their rights to accept or reject different forms of payment.
The Royal Mint states that just because cash is a legal tender, does not mean “that any ordinary transaction has to take place in legal tender”. For example, some businesses may not allow you to pay for something with a £50 note, and others may not accept cash payments entirely. They have the right to set their own payment policies.
This isn’t likely to change any time soon, with the Government stating in April 2022:
“The government does not plan to mandate cash acceptance. Businesses are able to choose the forms of payment they accept. The government’s proposals for legislation support cash acceptance.”