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Legal tender - What is legal tender?

Legal tender is officially defined as the coins or banknotes that must be accepted if offered in payment of a debt.

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The term ‘legal tender’ is widely misused – often to refer to the cash and currency that is commonly accepted by retailers.

However, the official definition of legal tender refers to very specific conditions surrounding the repayment of debt, so has little to do with which forms of payment can be used in everyday transactions.

For example, the official definition of legal tender exclusively refers to coins and banknotes. Payment via credit card therefore isn’t considered as legal tender, yet this is a widely accepted and extremely common form of payment.

There are certain rules for smaller value coins and how many can be used at once. The same rules apply across the UK.

Individual countries set their own rules regarding which notes are considered legal tender:

  • In both England and Wales, notes issued by the Bank of England are considered legal tender.
  • In both Scotland and Northern Ireland, only coins are considered legal tender. However, seven banks across Scotland and Northern Ireland are authorised by Parliament to print bank notes, which are widely accepted in both countries.

Which coins and notes should I accept?

One of the most common misconceptions regarding legal tender is whether Scottish or Northern Irish coins and bank notes can or should be accepted in England and Wales.

Many retailers believe they cannot accept notes from other parts of the UK if they are not considered legal tender. However, the definition of legal tender doesn’t influence which methods of payment are acceptable for individual transactions, or whether you should accept certain coins, notes or currencies.

If you are a retailer or business owner who deals in cash, you can decide which coins and notes you will accept as payment.

For example, there is no legal obligation to accept a £50 note as payment for a £1 purchase simply because a £50 note is considered legal tender, and you would not need to refuse Scottish bank notes on the grounds that they are not legal tender.

To reduce the risk of fraud and counterfeit notes, the Bank of England replaces notes from time to time. Once bank notes are withdrawn from circulation and replaced by a new design, they stop being legal tender. Some banks and post offices may accept old notes, but this is at their discretion. However, you can always exchange old notes directly through the Bank of England.

As a retailer or small business owner, you do not need to accept withdrawn banknotes.