Should You Accept Cash in 2026? The Real Tax & Liability Risks

Customer pulls out £600 in cash. "Saves us both the card fees, yeah?" You pocket it, mark the invoice paid, move on.

Six months later, HMRC requests your bank statements. They see £42,000 in card payments but you declared £68,000 revenue. Where's the other £26,000? "Cash jobs," you say. Prove it.

This guide breaks down the real tax, legal, and insurance risks of accepting cash—plus the hybrid strategy that keeps you compliant while serving customers who prefer notes over cards.

The Legal Reality: Cash Isn't Illegal (But It's Risky)

Let's clear up the myths:

Bottom line: Cash itself is fine. What gets you in trouble is poor record-keeping and undeclared income.

HMRC Compliance: What You Must Do

If you accept cash, HMRC expects you to document every penny. Here's what's required:

1. Issue Proper Receipts (Always)

• What's required: Business name, date, amount, description of work, customer name
• Keep copies: Duplicate receipt books or digital records (photo + cloud storage)
• Retention period: 6 years from end of tax year (HMRC can audit back this far)

2. Record Cash Income Immediately

3. Deposit Cash Promptly

• Best practice: Deposit within 3 business days of receipt
• Why it matters: Creates audit trail linking invoice → receipt → bank deposit
• Red flag: Large cash holdings at home with no deposits = HMRC assumes unreported income

4. Reconcile Monthly

Insurance Gaps You Didn't Know About

Cash creates insurance exposure most trades don't realize:

Van Theft: Cash Isn't Covered

• Standard van insurance: Covers tools, not cash
• Typical limit: £250-500 cash maximum coverage
• What this means: £2,000 cash in van overnight? You're self-insuring £1,500-1,750

Home Storage: Your Home Insurance Won't Cover It

• Business cash limits: Most home policies cap business cash at £500-1,000
• Exclusions: "Money held for business purposes" often excluded entirely
• Requirement: Need commercial cash-in-transit or business premises insurance

Robbery: Proof of Loss Challenges

Bank Deposit Limits and Suspicious Activity Reports

UK banks are required to monitor and report suspicious cash activity. Here's what triggers scrutiny:

The £10,000 Threshold

• Single deposit over £10,000: Bank files Suspicious Activity Report (SAR) automatically
• This isn't illegal: But you'll need to explain the source if asked
• Documentation required: Invoices, customer details, proof work was done

Structuring (Illegal)

Pattern Red Flags

• Regular just-under-£10K deposits: £9,800, £9,500, £9,900 = obvious structuring
• Sudden increase in cash: 6 months of £2K/month, then suddenly £8K/month
• Cash-to-revenue mismatch: You invoice £40K but deposit £60K cash = "where did extra £20K come from?"

The Hybrid Payment Strategy (Best Practice)

Don't go cash-only or card-only. Use this tiered approach:

Cash Acceptance Protocol

If you're taking cash, follow this exact process:

1. Step 1: Count cash in front of customer (prevents "you shortchanged me" disputes)
2. Step 2: Issue printed or electronic receipt immediately (use phone app if needed)
3. Step 3: Photo receipt + cash together (proof you had it)
4. Step 4: Record in accounting system same day (Xero, QuickBooks, or Toolfy)
5. Step 5: Deposit within 3 business days (keep deposit slip)
6. Step 6: Match invoice → receipt → deposit in monthly reconciliation

When to Refuse Cash Payment

Some situations are too risky. Say no to cash when:

The Bottom Line

Cash is legal—but only if you document everything, deposit promptly, and declare all income. The risk isn't HMRC catching you. It's forgetting a deposit, losing a receipt, or facing an audit without perfect records.

The hybrid strategy works: prefer cards, accept small cash jobs with strict protocols, refuse anything over £2K or from unverifiable customers.

And if a customer says "cash-in-hand, no receipt"? Walk away. The £500 job isn't worth the £20,000 HMRC fine when they audit you in 2027.