Cash basis

Cash basis is a way to work out your income and expenses for your self assessment tax return (external link), if you are 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 (external link)

This 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 not have to pay Income Tax on money you did not receive 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 (external link) as an expense 
  • run a business that is 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 (external link) (such as an accountant) or legal adviser (external link) if you need help. 

Find out if you are eligible (external link) to use cash basis.