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The cash basis is now the default for sole traders: is it right for you?
Since April 2024, the self-employed work out profits on money in and money out unless they choose otherwise. It is simpler, but not always better.
From 6 April 2024, the cash basis became the default way for the self-employed to work out taxable profit. An invoice raised in March and paid in April counts in April. The old turnover limit of £150,000 for using it was removed.
Two ways to count
Cash basis
- Income when received
- Costs when paid
- No debtors or accruals to track
- Simpler records
Accruals basis
- Income when earned
- Costs when incurred
- Matches profit to the work done
- Better for stock and finance
When accruals may suit you better
- You carry significant stock or work in progress.
- Customers take months to pay, and lenders want accounts that show what is owed.
- You expect a loss you want to set against other income.
- You are planning to incorporate, and want comparable figures.
You can opt out by ticking the box on your tax return. Look at it before the year starts, not after, and keep the same method for long enough to make comparisons meaningful.
This insight is general information, not advice for your circumstances. Talk to us before acting on it.