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What is Legal Tender UK

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Last editedOct 20212 min read

Legal tender is a fairly common term we have all probably heard, and many of us might think we know what it means. However, it can be complicated and even vague at times, so let’s explore the subject of legal tender to fully understand its definition.

Generally, legal tender is anything recognised by law as a means to make a payment for something. Where it gets complicated is that not everything we use to pay for things is actually classed as legal tender. And some quirks unique to the UK can take some people by surprise, especially any English tourists travelling to Scotland for the first time.

While Royal Mint coins are legal tender all over the UK, it is not the case with bank notes. England’s banknotes are printed by the Royal Bank of England and are legal tender in England and Wales, but not in Scotland and Northern Ireland.

Scottish banknotes are currently printed by three banks including the Bank of Scotland, Royal Bank of Scotland and Clydesdale Bank. These banknotes are not legal tender in England, Wales or Northern Ireland. Now, here’s the fun part. Scottish banknotes are technically not even legal tender in Scotland. The technicality is that Scottish banknotes are actually promissory notes, which means that by law the issuing banks must hold a sum of Bank of England banknotes or gold equivalent to the total value of the promissory notes they issue. 

While Scottish banknotes are not legal tender, they are legal currency. This means that they are perfectly legal to pay for something with, but a creditor can legally refuse them as payment for a debt. By law, legal tender is the only type of payment a creditor must accept when offered as payment, although they have the discretion to accept them if they so choose.

Other restrictions on UK legal tender include 1p and 2p coins. They are only considered legal tender up to the value of 20p. Beyond that, payment of a debt can be legally refused. 

Alternative payment methods

There are a variety of ways that payments can be made without using legal tender. Legally, a shopkeeper is allowed to accept any payment they like in exchange for their goods. If they want to swap one of their items in exchange for another item, then they are perfectly entitled to do so. The legal tender meaning comes into play with payments such as debts, corporation taxes, fines and other official payments to or on the order of governmental organisations. If you offer to pay such a debt with legal tender, then the creditor must by law accept it.

Also, it should be noted that the likes of credit and debit cards do not count as legal tender either. They are a means of transferring money that in its physical form is indeed legal tender, but the transaction itself does not actually involve an exchange of legal tender.

Another form of payment that is not legal tender is cryptocurrency. Along with the rise of online shopping has come a demand for alternative means of payment, and cryptocurrency is growing in popularity. However, it is not even close to being considered legal tender in the majority of the world, and it will probably be many years before the possibility arises.

Interestingly, the Republic of the Marshall Islands in the Pacific Ocean announced in 2018 that it was to create its own cryptocurrency, called ‘Sovereign’, which became the world’s first cryptocurrency to be classed as legal tender.

More and more ecommerce businesses are accepting cryptocurrency as payment, although for now it is still limited to the more alternative companies. You will find many websites accepting cryptocurrency on the grey and black market parts of the internet, but it has yet to fully break into the more mainstream online retailers.

We Can Help

If you’re interested in finding out more about legal tender and UK legal tender notes, or any other aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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