When you obtain goods or services from a third party then you usually exchange those goods or services with the vendor for something that person deems of be of similar/acceptable value. If you do not “pay” then there has been a gift or a theft.
In modern times the thing you exchange to “pay” is usually currency. Currency need not be cash, as long as it is a common currency. An old example in difficult circumstance was cigarettes. More recently we have the bit coin. However exchange can be of other goods or services – commonly known a barter transaction.
If you are in business you need to record all your sales and purchases. In order for these to be added up and assessed, then they all need to be in a common currency. In the UK this is usually sterling. So even if you have exchanged your goods for cabbages or Bristol Pounds then the value still needs to be assessed in sterling for you to record that sale.
Nowadays that payment may go straight into your bank account (whether sterling or bitcoin) but you can still receive cash.
Penalties of Cash:
Remember that if you receive more than £10,000 in cash for a single business transaction then you actually need to be registered under the money laundering regulations as a cash trader.
Please note that old Five pounds notes are no longer legal tender – so you are not allowed to use them to buy goods – and remember do not take them either. You should still be able to cash them in at your bank for a short time. But as a last resort you can take/send them to the Bank of England who will always exchange them.
The new one pound coins are now in circulation. Old ones will cease to be legal tender in October – so time to have that spring clean to get coins out from down the back of the sofa or cash in those change pots. Do not forget the kids piggy banks.
HMRC are not trusting of cash transactions so it is a good idea to keep good records e.g proper till
If you do bank you cash then the bank charge you extra for handling it
Cash may be easier to steal/fiddle – e.g by casual staff or cleaners etc
The general public think cash means a discount – but it has the same rules as any other means of payment and then costs you more to keep track off and process.
Penalties of Barter
Do not forget to record these transactions – or HMRC will guess sales and disallow purchases
Agree a value – or HMRC will guess for you
Do not forget to include barter sales when calculating income thresholds and VAT liabilities
Penalties of Currency
The sterling value of different forms of currency can fluctuate dramatically. So if you have a choice use a stable currency with few fluctuations or play the valuation game to make money from these fluctuations and do not loose out.
If you have a lot of transactions in a certain currency then consider a bank account in that currency to manage fluctuations better and minimise on bank charges for changing currency
If you are VAT registered then you need to record the VAT in sterling on the invoice or receipt – regardless of currency of the receipt.
Any difference in valuation between date of transaction and when payment is made counts as part of your trading profits or losses and is taxable as such.
There are lots of ways to play the currency fluctuations, with forward contracts to sell later etc etc that I will not mention here as being too complicated for a general blog
HMRC publish exchange rates for all major currencies that you may use for conversion to sterling but you can use any rate you can justify – just be consistent in your methods. For more information you can contact HMRC via phone or email