‘Cash basis’ is a way to work out your income and expenses for your Self Assessment tax return, if you’re a sole trader or partner.
Why use cash basis
If you run a small business, cash basis accounting may suit you better than traditional accounting.
See Also
Cash vs Accrual Accounting ExplainedCash vs Accrual Accounting: What's The Difference?What Is Cash Basis Accounting: Pros & Cons | PaychexCash Accounting Definition, Example & LimitationsThis is because you only need to declare money when it comes in and out of your business. At the end of the tax year, you will only pay Income Tax on money received in your accounting period.
When cash basis might not suit your business
Cash basis probably will not suit you if you:
- want to claim interest or bank charges of more than £500 as an expense
- run a business that’s more complex, for example you have high levels of stock
- need to get finance for your business - a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
- have losses that you want to offset against other taxable income (‘sideways loss relief’)
Talk to a tax professional (such as an accountant) or legal adviser if you need help.
Find out if you’re eligible to use cash basis.
