Ed Balls' suggestion that people have a duty to collect receipts from gardeners and cleaners for the smallest cash-in-hand jobs shows Labour has a "complete lack of understanding" about business, a Cabinet minister has said.
The shadow chancellor said he always demanded a written record, even if it was merely for £10 to trim a hedge, because it was the "right thing to do".
But Work and Pensions Secretary Iain Duncan Smith said it was "absurd" and showed that Labour did not know how businesses worked.
Asked whether he followed Mr Balls' advice, the Tory Cabinet minister said: "I don't think anybody in the country probably does that unless they sit down and they do it as part of a process; in other words, if you are employing somebody in which the objective is paying them cash as a process of your business, then of course I suspect most businesses do keep some kind of record, that's the right thing to do.
"But if you have a one-off payment for something and you pay cash, I shouldn't think anybody in the country does that necessarily ... what it exemplifies is Labour's complete lack of understanding about how business works and, actually, how people get by."
He told BBC Breakfast: "Here we have a man that would be the chancellor who is wandering around saying Big Brother is going to watch you carefully, that if you do any cash transactions and don't keep receipts, somehow they are going to punish you. I find that absurd."
The shadow chancellor's comments came as Labour and the Tories engaged in furious clashes over tax dodging, with both sides complaining of smears.
As he was pressed on BBC Radio 5 Live's Pienaar's Politics about what constituted tax avoidance, Mr Balls said: "The right thing to do if you are having somebody cut your hedge for a tenner is to make sure they give you their name and address and a receipt and a record for the fact that you have paid them."
Asked whether he himself followed that rule, he said: "Absolutely. That's because I am the shadow chancellor and I'm extremely careful about these things.
"Over my life, have I ever given people a tenner and not given a receipt for it? Probably yes.
But he had not done so "since I have been involved in politics and Treasury matters".
Mr Balls said: "It's not your job to pay their taxes for them and I think most people you give a tenner to are not going to be VAT-registered.
"They've got the legal obligation to make sure they pay their taxes if it's that kind of transaction - but I think the sensible thing for anybody is that you've got a record of it and you've done it properly."
Mr Duncan Smith said he could "understand the frustrations people feel" about tax avoidance but insisted the Government had acted to close loopholes.
Shadow business secretary Chuka Umunna dismissed the row as "a storm in a teacup" and insisted Mr Balls was not suggesting that everyone had an obligation to follow his lead by demanding receipts for minor cash-in-hand jobs.
Mr Umunna told Sky News: "Is he demanding that your viewers keep every single receipt that they get in respect of anything they spend, or make sure that they get a receipt? No, he wasn't doing that.
"I sometimes think the whole way we do politics and debate things in this bubble is just so ridiculous. He was doomed if he did and doomed if he didn't, in answering that question. It's all over the papers this morning, and actually it's a bit of a storm in a teacup, in my view."
Mr Umunna acknowledged that he did not keep all his own receipts, suggesting that Mr Balls was in a special position as he was putting himself forward as a future chancellor who might one day be in charge of HM Revenue and Customs.
"For my own part, do I keep a receipt every time I pay for something? I just paid for something using contactless payment, I didn't get a receipt for that," Mr Umunna told Sky News.