Experts warn why you should (almost) never pay a contractor in cash

If you’re about to take on a large-scale renovation or extension project, then you’ll be excitedly calling in quotes from potential contractors. Getting at least three quotes will help you understand what you can get for your budget, too. But a word of caution – don’t opt for the cheapest if it’s a “cash-only, word-of-mouth, we-can-do-it-now” quote, with no paper trail, however enticing it may sound. 

“It can be tempting to pay significantly less for a renovation project by agreeing to pay cash in hand,” explains Jana Kejvalova of Suited Insure. “Some builders may be willing to shave 20% off the price and put this down to not having to pay VAT on the project. But the reality is that without a proper invoiced paper trail, there’ is no real record of the job ever having been done.  

“That would be fine if everything went like clockwork. But if something does go wrong and there is no record [of the contractor having done the job] then it could be extremely difficult to persuade an insurer to pay out if the problem is bad enough to have to make a claim.” 

Quantity surveyor Tim Phillips from Quantiv.uk agrees and explains why paying a contractor for building work this way is a wise move: “I always recommend clients pay their contractor by bank transfer on mutually agreed payment terms, set out in a contract.  

“Paying in cash and failing to keep adequate documents leaves you at risk in situations where you may need to hold the contractor accountable for their performance or take legal action. In the long term, keeping a clean and documented paper trail protects your interests and guarantees that you have documentation to back up your claims in the event of a disagreement.” 

Most home renovation projects go well. But the unforeseen can happen – contractors may cause damage to your home, something may not work as it should, the wrong order of materials turn up. If issues crop up, communication and conversation will usually solve these things on site. After all, accidental damage or a mix-up with orders can happen. Plus, “businesses must abide by some implied terms of service,” explains Phillips. “Any services provided must be performed with reasonable care and skill, and within reasonable timeframes and fixed costs.” 

But what if you find yourself in a situation where communication has broken down and you’re left in limbo? Perhaps your contractor has walked off site or point-blank refuses to sort out the problem? You might need to turn to your insurer to make a claim. But, if you’ve paid in cash, will you be worse off trying to hold a contractor accountable for their work? 

“In the United Kingdom, the Consumer Rights Act of 2015 protects consumers when they conduct business with traders,” explains Phillips. “When there is a sufficient paper trail in place, these safeguards are easier to enforce. If the job is of poor quality, something is damaged during works or there are other concerns, cash transactions may make it more difficult to enforce your rights. Equally, if the business becomes insolvent halfway through the project, the possibilities of raising a claim are severely limited with no paper evidence, too.” 

“A well-documented paper trail gives confirmation of the project’s terms and conditions, mutually agreed-on schedule of work, and payments made, which can be helpful during legal procedures or insurance claims,” continues Phillips. 

Experts on our Saga Insurance team agree, saying: “It would be logical to assume that with no evidence in the form of formal documentation (a contract), a claim is more likely to be declined.” They also advise that “pursuing a claim against a contractor for faulty workmanship, for example, would not be covered under Saga’s core home insurance policy, and customers would require the optional legal expenses add-on to claim for this, which is commonplace in the market.”  

If a contractor refuses to come and fix problems post-completion, then you might find yourself in a tricky situation if you’ve paid in cash. “If you have receipts and a contract outlining a SOW, then it shouldn’t make it hard to ask a contractor back to rectify any issues that arise once they’ve finished,” says Phillips. “However, problems could arise if they refuse to rectify issues and you haven’t got documentation to prove they did the work in the first place.    

“As mentioned above, the Consumer Rights Act of 2015 will provide you with some protection but will be more difficult to enforce if you just have a handful of paper receipts, or none at all. If there is no clear paper trail of the cash payment, trading standards, your insurers or lawyers may be unable to assist you. Also, the contractor’s liability insurance may refuse to pay a claim if there is no receipt of the cash payment.” 

Paying in cash for smaller-scale jobs isn’t a bad thing. In other words, you needn’t worry too much if the job you need doing is unlikely to cause wider issues in your home.  

“There are some small jobs around your property under £100 that may warrant the use of cash,” says Phillips. For example, rehanging a door, installing shelves and putting together flatpack furniture are all small-scale contractor jobs where there’s less chance of something going drastically wrong.  

If you do go down this route, it’s crucial to get a receipt for the work when you pay in cash. “Paying a builder in cash is a fully legal transaction; however, there are no legal ramifications without any proof of payment,” says Phillips. “A receipt from the contractor would help verify that you paid by cash. However, I would still advise paying by bank transfer because your paper or electronic bank statements will have a clear record of the payment. You could also use references when making payments via your bank account for the project, such as ‘Smith builder payment 1’ to make it clear the payment is going to the builder.”