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Cash basis accounting is the standard way to record your income and expenses if you鈥檙e a sole trader or partnership without corporate partners.

With cash basis you only record income or expenses when you receive money or pay a bill.

You鈥檒l use your records to work out your profit on your Self Assessment tax return. This means you鈥檒l not need to pay Income Tax on money you have not yet received.

Some businesses cannot use cash basis, for example, limited companies. Check if you can use cash basis.

Other ways to work out your profit

You can choose to use traditional accounting instead. With traditional accounting you record income and expenses by the date you invoiced or were billed.

You might choose this method if your business:

• is complex, for example, it has high levels of stock
• needs to get finance - a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan

If you use traditional accounting

You鈥檒l need to keep more records for traditional accounting.

When you send your Self Assessment tax return you鈥檒l need to say that you鈥檝e used traditional accounting.

You might have to make some adjustments if you switch to traditional accounting.