Cash Basis Accounting for Sole Traders: Complete UK Guide 2026/27

3. Cash basis vs accrual accounting: What is the difference?

The main difference between cash basis and accrual accounting is when business income and expenses are recognised.

Cash basis records transactions when payments are received or made. Accrual accounting, also called traditional accounting, generally recognises income when earned and expenses when incurred, even when payment takes place later.

Both methods can produce an accurate tax calculation when applied correctly. However, they can produce different taxable profits for a particular tax year.

Cash basis vs accrual accounting comparison

Example: Comparing cash basis and accrual accounting

James is a self-employed IT consultant.

During the 2026/27 tax year, James completes £50,000 of consultancy work but receives only £43,000 from customers before 5 April 2027.

He also incurs £12,000 in allowable business expenses, of which he pays £9,000 before the tax year ends.

Assume there are no other adjustments.

Under cash basis, James reports a profit of £34,000.

Under accrual accounting, his profit is £38,000.

The £4,000 difference arises from the timing of customer receipts and supplier payments.

James’s taxable profits in subsequent periods may also differ as the outstanding amounts are settled.

Important: Cash basis does not permanently exempt unpaid customer income from tax. The income is generally brought into account when payment is received, subject to any relevant adjustments or special rules.

4. What are the advantages and disadvantages of cash basis accounting?

Cash basis accounting can simplify the preparation of sole trader accounts, but its suitability depends on how your business operates.

A freelance consultant who receives payments promptly may have different accounting requirements from a retailer managing substantial stock and supplier credit.

Advantages of cash basis accounting

1. Simpler bookkeeping

Income and expenses are generally recorded when money is received or paid. This can reduce the number of year-end adjustments needed to calculate taxable trading profits.

2. Tax calculations reflect actual receipts

A sole trader generally does not have to include unpaid customer invoices in cash basis turnover before receiving payment.

This can reduce the pressure of paying Income Tax on income that has not yet been collected.

3. Easier expense tracking

Allowable business expenses are generally recorded when payment is made.

Bank statements, receipts and accounting software can help you identify the relevant transactions.

4. Simplified treatment of certain equipment purchases

Many qualifying business equipment purchases can be deducted as expenses under cash basis, instead of requiring a separate capital allowance calculation.

Cars and certain other assets remain subject to special rules.

5. Greater flexibility for growing businesses

The removal of the previous general turnover restrictions means that eligible sole traders can continue using cash basis as their businesses grow.

Disadvantages of cash basis accounting

1. Business profitability can be harder to assess

Cash basis accounts do not automatically show the full value of unpaid customer invoices, outstanding supplier bills or other obligations.

For example, a business might have £20,000 in its bank account but owe suppliers £15,000.

Looking only at the bank balance could create an unrealistic impression of the business’s financial position.

2. Taxable profits may fluctuate significantly

Large customer payments or business purchases close to the tax year-end can produce substantial differences between annual profit figures.

3. It may not suit businesses with complex stock arrangements

Retailers, wholesalers and manufacturers may need more detailed stock and cost-of-sales records to understand their commercial performance.

4. Lenders may require traditional financial statements

Some lenders and investors request accrual-based accounts, balance sheets or other financial information that cash basis records alone may not provide.

5. Switching accounting methods requires care

Changing from cash basis to accrual accounting, or vice versa, can require transitional adjustments to prevent income and expenses being reported twice or omitted.

5. How do you record income under cash basis accounting?

Under cash basis accounting, you generally record business income when you actually receive payment, regardless of when you issued the invoice.

Customer receipts may include payments for goods, services, consultancy, freelance work and other trading activities.

HMRC allows consistent methods of identifying the payment date. However, you must apply your chosen approach consistently rather than changing payment dates to obtain a more favourable tax result.

How should you record unpaid customer invoices?

Do not include an unpaid customer invoice in cash basis income simply because you have issued it.

Suppose you issue a £3,000 invoice on 28 March 2027.

Your customer pays £3,000 on 20 April 2027.

The payment is generally recorded in the 2027/28 tax year, not 2026/27.

You should still maintain an invoice record so that you can follow up outstanding payments and reconcile your accounts.

What happens if a customer makes a partial payment?

Record the amount actually received.

For example, you issue an invoice for £4,000 in March 2027.

The customer pays £1,500 in March and the remaining £2,500 in May.

Under cash basis:

You should record each payment against the original invoice to avoid double-counting.

Are cash payments and online payments included?

Yes. You must account for all relevant business receipts, regardless of whether customers pay by cash, bank transfer, payment card or another method.

For example, a self-employed photographer who receives £2,000 through bank transfers and £500 in physical cash must not exclude the £500 simply because it was not deposited into a bank account.

If you sell through online marketplaces or payment processors, reconcile the underlying sales and platform statements. Avoid treating a transfer between your own accounts as a new business sale.

What about customer deposits and advance payments?

A customer deposit received before work begins may need to be included in cash basis trading income when received.

The tax treatment depends on the nature of the payment and the relevant contractual arrangements.

For example, an advance payment for a future service may be treated differently from a genuinely refundable security deposit held on behalf of a customer.

Review the terms of the transaction rather than assuming that every deposit is taxable income or that every deposit can be excluded.

6. What expenses can sole traders claim under cash basis?

Under cash basis, sole traders generally deduct qualifying business expenses when they are paid.

The expense must still satisfy the applicable tax rules. Paying for something from a business account does not automatically make the expenditure tax-deductible.

Where an expense has both business and personal purposes, only the allowable business portion can normally be deducted.

Common allowable expenses under cash basis accounting

Certain expenditure may be restricted, excluded or subject to special tax treatment.

For example, client entertainment, ordinary clothing and personal household expenditure are not normally deductible merely because they have some connection with your business.

Example: An unpaid business expense

A sole trader receives a £600 invoice for website development services on 20 March 2027.

The sole trader pays the invoice on 12 April 2027.

Assuming the expenditure qualifies as an allowable expense, the payment would generally be deducted in the 2027/28 tax year under cash basis.

The invoice date alone does not establish when the deduction is recognised.

Can you claim business expenses paid using a personal bank account?

Yes. Paying a genuine business expense from your personal bank account does not automatically prevent you from claiming the allowable deduction.

However, you must retain evidence of the payment and establish that the expenditure relates to your trade.

For example, if you buy £400 of qualifying business equipment using your personal debit card, record the purchase correctly in your business accounts.

Do not claim the cost twice if you subsequently transfer £400 from your business account to reimburse yourself.

7. Can you claim the full cost of business equipment under cash basis?

Many qualifying business equipment purchases can be deducted as allowable expenses under cash basis when the expenditure is paid.

For example, a self-employed graphic designer who buys a £1,500 computer exclusively for their business may generally deduct the qualifying cost when paid, subject to the applicable rules.

However, cars, land, certain financial assets and other excluded capital expenditure are treated differently.

Can you claim the cost of a laptop?

Yes. A laptop purchased and used for genuine business activities will generally qualify for a deduction, subject to the rules governing capital expenditure and private use.

Suppose a freelance writer purchases a laptop for £1,200 and uses it exclusively for business.

The qualifying £1,200 cost may generally be deducted under cash basis when paid.

If the laptop is used partly for personal activities, an appropriate adjustment may be required.

Are business cars treated differently?

Yes. The purchase cost of a car is not treated as an ordinary cash basis expense.

Instead, you may be able to claim capital allowances where the relevant conditions are met.

Alternatively, eligible sole traders may use simplified mileage expenses for qualifying business journeys.

You cannot claim capital allowances for a car while also using simplified mileage expenses for the same vehicle.

What happens when you sell business equipment?

Selling an asset whose acquisition cost was deducted under cash basis can create a taxable business receipt.

For example, a sole trader who previously deducted the qualifying cost of a business computer may need to include relevant proceeds when selling that computer.

Special adjustments can also apply if an asset is withdrawn from business use or its private use increases significantly.

8. How does cash basis accounting work for stock and inventory?

A sole trader using cash basis generally deducts qualifying stock purchases when payment is made, rather than automatically waiting until the stock is sold.

For example, a retailer purchases £5,000 of goods for resale in March 2027 and pays the supplier immediately.

The retailer may generally deduct the qualifying £5,000 expenditure in the 2026/27 tax calculation, even if some goods remain unsold at the year-end.

Under traditional accounting, the treatment of unsold stock normally involves an inventory adjustment so that the relevant cost is matched with the accounting period in which goods are sold.

Important: Cash basis does not eliminate the commercial need to monitor stock. Retailers should maintain suitable inventory records to identify missing goods, calculate margins and manage future purchases.

Special valuation and tax rules may also apply when a business ceases trading.

9. How do business loans and interest work under cash basis?

Receiving a genuine business loan is not normally treated as taxable trading income simply because the money enters your business bank account.

Similarly, repaying the loan principal is not normally an allowable business expense.

Qualifying business interest and finance charges may be deductible under the applicable tax rules.

The previous £500 cash basis interest deduction limit was removed from 6 April 2024. Eligible businesses can now claim qualifying interest without that former cash basis-specific cap, subject to the normal deductibility requirements.

Example: A sole trader business loan

A sole trader receives a £10,000 loan to purchase qualifying business equipment.

During the year, the sole trader pays £2,000 towards the loan principal and £600 in qualifying business interest.

The £10,000 loan receipt is not ordinary trading turnover.

The £2,000 repayment of principal is not normally deductible as a business expense.

The £600 of qualifying business interest may be deductible when paid under cash basis.

The equipment purchase must be considered separately under the applicable expenditure rules.

10. Cash basis accounting example: Calculating your taxable profit

A sole trader’s cash basis profit is generally calculated by deducting allowable business payments from business receipts for the relevant period, subject to any necessary tax adjustments.

Consider a self-employed marketing consultant operating in England during the 2026/27 tax year.

Step 1: Calculate business income received

The consultant also has £4,000 of unpaid customer invoices at 5 April 2027.

The unpaid invoices are not included in the £44,000 cash basis income because payment has not yet been received.

Step 2: Calculate allowable expenses paid

Assume all listed expenses were paid during the tax year, relate exclusively to the business and qualify for deduction under cash basis.

Step 3: Calculate the trading profit

The consultant’s cash basis trading profit is £30,000.

This is the starting point for calculating taxable trading profits, subject to any further adjustments, reliefs or allowances.

Step 4: Calculate the estimated tax liability

Assume the consultant is resident in England, has no other taxable income, qualifies for the full Personal Allowance and is subject to the standard 2026/27 Income Tax and Class 4 National Insurance rules.

The estimated liability is £4,531.80 before taking account of payments already made and any other applicable personal tax adjustments.

The calculation also excludes any student loan repayments or other liabilities that may be relevant.

The consultant should review their Self Assessment statement for any payments on account due towards the next tax year.

Read Accfirm’s Sole Trader Tax Calculator 2026/27  guide for a more detailed explanation of estimating Income Tax and National Insurance.

11. How do you report cash basis accounting on your Self Assessment tax return?

Sole traders report their business income and allowable expenses through the self-employment section of their Self Assessment tax return.

Cash basis is the default method for eligible businesses. If you choose traditional accounting instead, you must indicate that choice in the relevant tax return or software.

Step-by-step cash basis Self Assessment process

Step 1: Gather your financial records. Collect your business bank statements, invoices, receipts, sales records and details of any other business transactions.

Step 2: Identify the correct accounting period. Establish the business receipts and payments relevant to the tax year. The tax year runs from 6 April to 5 April, although accounting periods ending on other dates can require additional calculations.

Step 3: Calculate business income. Add together your relevant cash basis receipts, excluding unpaid customer invoices and non-trading receipts that should not form part of turnover.

Step 4: Calculate allowable expenses. Total your qualifying business payments and make the necessary adjustments for private use, disallowed expenditure and special tax rules.

Step 5: Complete the self-employment section. Enter your business income, allowable expenses and other relevant information into the appropriate Self Assessment return or compatible tax software.

Step 6: Review your tax calculation. Check your Income Tax, National Insurance and other relevant liabilities before submitting your return.

For detailed filing instructions, read Accfirm’s Sole Trader Self Assessment Guide 2026/27 .

What are the Self Assessment deadlines for 2026/27?

The standard Self Assessment deadlines are:

These dates reflect the standard Self Assessment timetable. Different filing arrangements can apply in particular circumstances, including where HMRC issues a later notice to file or Making Tax Digital applies.

12. How does Making Tax Digital affect cash basis accounting in 2026/27?

Making Tax Digital for Income Tax requires eligible sole traders and landlords to maintain digital records, send quarterly updates and complete their annual tax reporting using compatible software.

Cash basis accounting remains available under Making Tax Digital. However, eligible businesses must comply with the relevant digital record-keeping and submission requirements.

Making Tax Digital qualifying income thresholds

Qualifying income generally refers to combined gross income from self-employment and property before expenses.

For example, a sole trader with £35,000 in qualifying self-employment income and £20,000 in qualifying property income has combined qualifying income of £55,000.

The combined amount is relevant when assessing Making Tax Digital eligibility.

The income thresholds are not cash basis turnover limits. They establish when qualifying individuals must begin using Making Tax Digital for Income Tax.

Does cash basis accounting require quarterly tax returns?

No. Sole traders within Making Tax Digital must generally send quarterly updates summarising their recorded business income and expenses.

These updates are not separate quarterly tax returns and do not automatically require quarterly Income Tax payments.

You must still complete the applicable annual tax return process and pay your tax by the relevant deadline.

Making Tax Digital quarterly deadlines for 2026/27

For an individual using standard tax-year reporting periods, the submission deadlines are:

The standard quarterly updates are cumulative, covering the period from the beginning of the tax year to the end of the relevant update period.

Individuals with different accounting periods may use calendar update periods where applicable.

As of September 2026, the first quarterly update deadline has passed for taxpayers required to join Making Tax Digital from April 2026.

HMRC has confirmed that penalty points will not be applied for late quarterly updates during the 2026/27 tax year. Nevertheless, affected taxpayers must maintain the required digital records and submit their outstanding updates.

Can you use a spreadsheet for cash basis accounting under Making Tax Digital?

Yes, provided your record-keeping and submission arrangements satisfy HMRC’s Making Tax Digital requirements.

For example, you may be able to use a suitable spreadsheet together with compatible bridging software that digitally transfers the required information to HMRC.

Simply maintaining a spreadsheet and manually entering totals into an ordinary online tax return is not sufficient where Making Tax Digital requirements apply.

HMRC provides guidance on creating digital records  and selecting compatible software.

13. Does cash basis accounting affect VAT registration?

Using cash basis for Income Tax does not remove your obligation to register for VAT when the relevant VAT registration conditions are met.

For 2026/27, the compulsory VAT registration threshold is £90,000 of taxable turnover.

A business must generally register if taxable turnover exceeds £90,000 over a rolling 12-month period or is expected to exceed that amount in the next 30 days alone.

VAT turnover must be calculated under the applicable VAT rules. You should not simply assume that your cash basis Income Tax receipts are the correct figure for every VAT threshold calculation.

Is cash basis for Income Tax the same as VAT cash accounting?

No. Cash basis for Income Tax and the VAT Cash Accounting Scheme are separate arrangements.

Cash basis for Income Tax determines when eligible business income and expenses are recognised for calculating taxable trading profits.

The VAT Cash Accounting Scheme generally allows eligible VAT-registered businesses to account for VAT on sales when customers pay and recover input VAT when suppliers are paid, subject to the scheme’s rules.

A sole trader who uses cash basis for Income Tax does not automatically become a member of the VAT Cash Accounting Scheme.

How should VAT-registered sole traders record transactions?

HMRC permits VAT-registered businesses using Income Tax cash basis to record income and expenses either including or excluding VAT, provided the treatment is consistent.

If VAT-inclusive figures are used, VAT payments to HMRC must be recorded as expenses and VAT repayments received from HMRC as income.

For example, suppose a VAT-registered sole trader receives £1,200 from a customer, including £200 of VAT.

Under VAT-exclusive accounting, the £1,000 net sale is recognised as trading income, while the £200 is dealt with through the VAT records.

Under VAT-inclusive accounting, the £1,200 receipt is recorded, and the corresponding VAT payment to HMRC is accounted for appropriately.

Avoid mixing VAT-inclusive sales with VAT-exclusive purchases without making the necessary adjustments.

14. What happens if you make a loss under cash basis accounting?

A cash basis trading loss generally arises when allowable business expenses exceed the relevant trading income for the period, after applying the necessary tax adjustments.

For example, a newly established freelance business receives £8,000 from customers and incurs £11,000 in allowable business expenditure.

Assuming no further adjustments, the business has a trading loss of £3,000.

Can cash basis losses be carried forward?

Yes. Qualifying trading losses may be carried forward and relieved against future profits from the same trade, subject to the relevant rules.

Other forms of trading loss relief may also be available.

The former cash basis-specific restrictions on certain types of loss relief were removed from 6 April 2024. Cash basis trading losses can now generally access the same categories of relief as accrual-based trading losses, subject to the normal conditions and limitations.

For example, a qualifying trading loss may potentially be relieved against other income or carried back to an earlier tax year where the relevant statutory conditions are satisfied.

The correct treatment depends on the nature of the trade, the period in which the loss arose, the availability of other income and any applicable restrictions.

Accfirm advice: Do not automatically assume that every cash basis loss can be deducted from your employment income. Have a qualified accountant review the available loss relief options before making a claim.

15. Can a sole trader switch from cash basis to accrual accounting?

Yes. An eligible sole trader can elect to calculate trading profits using traditional accounting instead of cash basis.

However, changing accounting methods can require transitional adjustments to prevent business income or expenses being counted twice or omitted from the tax calculation.

Example: Switching accounting methods

Suppose a sole trader issues a £3,000 invoice in March 2027 while using cash basis accounting.

The invoice remains unpaid at 5 April 2027.

The sole trader switches to traditional accounting for 2027/28 and receives the £3,000 payment in May 2027.

The payment was not included in 2026/27 cash basis income.

However, the work was completed in the previous tax year, so the May receipt would not ordinarily form part of revenue earned in the new accrual accounting period.

A transitional adjustment is therefore needed to ensure that the £3,000 is brought into account correctly.

Without the adjustment, the income could be omitted from both tax years.

Similar issues can arise with unpaid supplier invoices, stock, capital expenditure and other accounting balances.

If you are changing accounting methods, seek professional advice before submitting the first tax return prepared under the new method.

16. How long must sole traders keep cash basis accounting records?

HMRC generally requires self-employed individuals to keep their business records for at least five years after the 31 January submission deadline for the relevant tax year.

For the 2026/27 tax year, the normal retention date is at least 31 January 2033.

Longer retention requirements may apply in certain circumstances, including where a return is submitted very late or an HMRC enquiry remains open.

Essential cash basis bookkeeping records

Keep suitable records of:

• Customer invoices, receipts and payment dates.

• Business bank statements and cash transactions.

• Supplier invoices, expense receipts and payment dates.

• Business equipment purchases and disposals.

• Stock purchases and relevant inventory information.

• Business loan and interest payments.

• VAT records, where applicable.

• Adjustments for personal use and other tax-related transactions.

You should also retain copies of submitted tax returns and supporting calculations.

Is a business bank account required?

Sole traders are not generally required by tax law to open a separate business bank account.

However, a dedicated business account can simplify the reconciliation of customer payments, supplier expenses and other financial transactions.

If you use a personal account for business activities, check that the arrangement complies with your bank’s account terms.

Keeping business and private transactions separate also makes it easier to identify genuine allowable business expenses.

17. Common cash basis accounting mistakes to avoid

Cash basis accounting simplifies the timing of many transactions, but it does not remove the need for accurate records and proper tax treatment.

The following mistakes can result in incorrect trading profit calculations.

Mistake 1: Recording income when invoices are issued

If you use cash basis, an unpaid invoice should not generally be included in income simply because it has been issued.

Record the income when the relevant payment is received.

Mistake 2: Claiming expenses before paying suppliers

Receiving an invoice does not normally establish the date of deduction under cash basis.

Check the actual payment date and retain supporting records.

Mistake 3: Treating all bank deposits as business income

A bank deposit may represent trading income, a personal transfer, loan proceeds or another type of receipt.

Identify the nature of each transaction before including it in your trading profit calculation.

Mistake 4: Deducting business loan repayments

Repayment of loan principal is not normally an allowable business expense.

Qualifying business interest may be deductible separately.

Mistake 5: Claiming personal expenditure

Personal purchases are not automatically deductible simply because they are paid from a business account.

Where expenditure has both business and private purposes, apply the relevant tax rules and claim only the allowable amount.

Mistake 6: Incorrectly claiming the cost of a business car

Cars are subject to different rules from many other forms of business equipment.

Check whether capital allowances or simplified mileage expenses apply rather than automatically deducting the full purchase price.

Mistake 7: Using outdated cash basis thresholds

The previous £150,000 entry limit and £500 interest deduction restriction no longer apply as general cash basis restrictions for 2026/27.

Use the current rules rather than relying on accounting guides based on tax years before April 2024.

Mistake 8: Confusing cash basis with VAT cash accounting

Income Tax cash basis and the VAT Cash Accounting Scheme have different rules.

You must assess each arrangement separately.

Mistake 9: Ignoring outstanding invoices and supplier bills

Although unpaid invoices and bills may not enter the current cash basis profit calculation, they remain important for cash-flow planning.

Maintain records of outstanding amounts so that you can manage customer collections and upcoming supplier payments.

Mistake 10: Failing to prepare for Making Tax Digital

Using cash basis does not automatically exempt your business from digital record-keeping or quarterly reporting.

Check your qualifying income and the date on which Making Tax Digital becomes mandatory for your circumstances.

18. Frequently asked questions about cash basis accounting for sole traders

Is cash basis accounting the default for UK sole traders?

Yes. Cash basis became the default method of calculating taxable trading profits for eligible sole traders from 6 April 2024. You can elect to use traditional accounting instead, provided you follow the applicable reporting rules.

Can I use cash basis if my turnover exceeds £150,000?

Yes, provided your business is otherwise eligible. The general £150,000 entry threshold was removed from 6 April 2024. Eligible sole traders are no longer required to leave cash basis simply because their turnover exceeds the previous threshold.

Can I use cash basis if I am VAT registered?

Yes. VAT-registered sole traders can use cash basis for Income Tax, subject to the applicable eligibility rules. However, VAT reporting must still follow the relevant VAT accounting requirements. Using Income Tax cash basis does not automatically place you in the VAT Cash Accounting Scheme.

Do I record an invoice before the customer pays me?

Under cash basis, you generally record trading income when the customer pays you. You should still retain the original invoice and keep track of the outstanding amount for commercial and bookkeeping purposes.

Can I claim expenses paid using my personal bank account?

Yes. A qualifying business expense can generally be deductible even when paid using your personal bank account. Maintain appropriate evidence of the business purpose and payment, and avoid claiming the same expenditure twice.

Can cash basis accounting reduce my tax bill?

Cash basis can change the timing of taxable income and deductible expenditure. For example, unpaid customer invoices are generally not taxed until payment is received. However, cash basis does not necessarily reduce your total tax liability over the lifetime of your business.

Can I claim the £1,000 trading allowance while using cash basis?

Yes, if you qualify. However, if you deduct the trading allowance from qualifying trading income, you cannot also deduct actual business expenses against that same income. Compare the available options before preparing your return.

Is cash basis accounting suitable for a new sole trader?

Cash basis can be straightforward for a new sole trader with relatively simple income and expense transactions. However, businesses with substantial stock, complex contracts or significant financing arrangements may need more detailed financial reporting.

Do I need accounting software if I use cash basis?

Accounting software is not automatically compulsory simply because you use cash basis. However, if Making Tax Digital for Income Tax applies to you, compatible digital record-keeping and reporting arrangements are required.

Can I change from cash basis to traditional accounting?

Yes. You can elect to use traditional accounting. Transitional adjustments may be necessary when changing methods, particularly where outstanding invoices, supplier bills, stock or assets are involved.

19. How Accfirm can help with cash basis accounting for sole traders

Cash basis accounting can make everyday bookkeeping simpler, but selecting the appropriate accounting method requires an understanding of your business activities, financial position and tax obligations.

An accountant can help you assess whether cash basis or traditional accounting is appropriate for your circumstances.

Accfirm provides accounting and tax support for UK sole traders, freelancers, contractors and small business owners.

Our sole trader accountants  can help you understand and manage:

• Cash basis and traditional accounting requirements.

• Business bookkeeping and financial record-keeping.

• Calculating taxable trading profits.

• Reviewing allowable business expenses.

• Preparing Self Assessment tax returns.

• VAT registration and accounting requirements.

• Making Tax Digital readiness and compatible accounting software.

• Reviewing trading losses and potential tax reliefs.

• Planning Income Tax, National Insurance and payments on account.

Whether you are starting a business or reviewing the accounting arrangements for an established sole trader operation, professional support can help you maintain accurate records and understand your reporting obligations.

Final thoughts: Is cash basis accounting right for your business?

Cash basis accounting is the default method of calculating taxable trading profits for most eligible UK sole traders.

The method allows you to record business income when payments are received and allowable expenses when payments are made.

The removal of the previous general turnover and interest deduction restrictions has also made cash basis available to a wider range of unincorporated businesses.

However, cash basis is not necessarily the most suitable accounting method for every sole trader.

Businesses with substantial stock, complex financing arrangements or significant outstanding customer invoices may benefit from traditional accounting or additional financial reporting.

Whichever method you use, maintain accurate business records, apply the relevant HMRC rules and prepare your Self Assessment return before the filing deadline.

If you are unsure which accounting method is appropriate for your circumstances, speak with a qualified accountant at Accfirm before preparing your next tax return.