On 24 June 2021 HMRC published research on the behaviour of small and medium sized businesses in relation to payment transactions.

Most common online payment methods

The most common online payment method accepted was by small and medium businesses was online bank transfers, including direct debits and standing orders, with 92% of small and 94% of medium businesses accepting them. Around 75% of small and 73% of medium sized businesses accepted cash payments. Only around 2% of small businesses preferred payments to be made to them by cash, and no mid-size businesses encouraged cash payments.

Proportion of sales from each payment method

Although the majority of small and medium enterprises would accept cash payments, those cash payments were a relatively small part of small and midsized business turnover in 2019/20. Online transfers, where they were accepted, were the main method by which payment was made for sales. Cash payments were generally no more than 10% of sales for businesses accepting them. Around 25% of small businesses and 26% of mid-size businesses had not registered any revenue at all through cash in 2019/20.

Direct costs incurred for each payment method

Compared to other types of payment, cash payments incurred the lowest direct fees, and many businesses considered that there were no direct costs associated with cash payments at all. For small businesses that reported their costs, the highest average costs related to online bank transfers at GBP 8,471 per annum. The lowest average direct costs related to cash payments (GBP 676 per year). Among all the businesses surveyed, the highest mean costs related to card payments (GBP 30,678 per year). The lowest average direct costs were for cash payments at GBP 5,047 per annum.

Other costs associated with payment methods

More than half the businesses surveyed also reported other costs in relation to the different payment methods. These costs related to expenses such as internet, staff time and general administration.

Impact of the pandemic on payment methods

One sixth of small business made changes to the type of payments accepted during the pandemic. 5% of small businesses would no longer take cash payments, while a further 3% discouraged or reduced acceptance of cash.

Some small businesses began to accept online bank transfers or card payments as a result of the pandemic. Around 11% of small businesses changed the payment methods they encouraged during the pandemic. The changes mainly aimed to reduce physical contact, either by discouraging cash payments, accepting more card payments or encouraging online bank transfers.

Of mid-sized businesses, around one sixth changed the types of payment accepted during the pandemic. The most common change was to no longer accept cash, or to reduce or discourage cash payments, and some stopped accepting (or discouraged) payments by cheque.

Cash payments and tax evasion

The majority of small and mid-sized businesses considered it unacceptable to take cash payments to avoid paying tax, but a certain percentage were of the opinion that other businesses were relaxed in their view of under-declaring income to avoid tax. Approximately one fifth of small businesses and one sixth of medium businesses considered it acceptable for an individual doing a small job to take cash to avoid paying tax. This appeared to be a consequence of the empathy for the self-employed and smaller business confronted by financial problems.