As a small business owner you might be wondering which accounting method to use: accrual accounting or cash basis accounting, which is now the default.<\/p>\n\n\n\n
You’ll need to manage your books, not only for tracking your profits and filing your tax return, but for understanding business performance, making budgeting decisions, and applying for loans and investment.<\/p>\n\n\n\n
The method you choose depends on your business setup and how complex your operations are. But deciding whether to use accrual accounting or cash basis needn\u2019t be tricky \u2013 find out what you need to know here:<\/p>\n\n\n\n
Cash accounting (or cash basis accounting) lets you do your taxes based on when money actually comes in (and leaves) your business. You\u2019ll record the date you make or receive a payment rather than the date of your invoice or bill. <\/p>\n\n\n\n
Since 6 April 2024, cash basis accounting became the default way of accounting \u2013 meaning you\u2019ll have to opt out if you want (or need) to use another method. And if you can\u2019t use cash basis, then you\u2019ll need to use traditional accounting to work out your taxable profits.<\/p>\n\n\n\n
Small businesses might find that cash basis accounting is a more straightforward way to manage their finances than traditional accounting.<\/p>\n\n\n\n
Sole traders and partnerships can use cash basis accounting, which is particularly suited to businesses that don\u2019t have a complicated setup.<\/p>\n\n\n\n
Here\u2019s a cash accounting example for income\u2026<\/strong><\/p>\n\n\n\n \u2026and a cash basis accounting example for expenses:<\/strong><\/p>\n\n\n\n If you don\u2019t want to use cash basis accounting for your business, you\u2019ll need to tick the opt out box when you file your Self Assessment<\/a> tax return.<\/p>\n\n\n\n As of 2024, cash basis accounting is the default method \u2013 but only if you\u2019re eligible, as there are rules about who can and can\u2019t use cash basis accounting. You have to be a self-employed sole trader or partnership<\/strong> running a small business.<\/p>\n\n\n\n Meanwhile VAT-registered businesses\u2026<\/strong><\/p>\n\n\n\n Limited companies and limited liability partnerships can\u2019t use cash basis accounting, and HMRC has a list of other types of businesses that can\u2019t join<\/a> (these are niche, though, including waste disposal and ministers of religion).<\/p>\n\n\n\n\n
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Can my small business use cash basis accounting?<\/h2>\n\n\n\n
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