# Cash Basis or Accruals: Which Should a Sole Trader Use?

Canonical: https://taxmo.co.uk/blog/cash-basis-vs-accruals
Published: 2026-08-06
Tags: Bookkeeping, Self Assessment

This is the choice that quietly determines how much tax you pay this year rather than next. It is worth ten minutes of thought, and most people never give it any.

## The difference in one line

Cash basis recognises income when the money arrives and expenses when you pay them. Accruals, also called traditional accounting, recognises income when you invoice and expenses when you incur them, regardless of when money moves.

> Under cash basis you are not taxed on an invoice your customer has not paid. That single fact is why most sole traders with slow-paying clients prefer it.

## Why cash basis suits most sole traders

If you invoice in March and get paid in May, accruals taxes that income in the year you invoiced. You pay tax on money you have not received, potentially before the client has paid at all.

Cash basis avoids that entirely. Your taxable profit tracks your bank account, which is both simpler to understand and kinder to your cash flow.

## When accruals is better, or required

Accruals gives a truer picture of a business's performance in a period, which matters if you are seeking finance, taking on investors, or genuinely need a balance sheet.

It is required for limited companies, and there are eligibility limits on cash basis for unincorporated businesses. There are also restrictions under cash basis on certain deductions, so it is not universally simpler.

## The switching trap

Changing method mid-stream is where mistakes happen. Income can be counted twice or not at all if you switch without adjusting, because the same invoice may fall into both years or neither depending on which side of the change it sits.

Whichever you choose, apply it consistently, and get advice before switching rather than after. Software should apply one method consistently rather than mixing them per entry, which is the failure mode that produces figures nobody can reconcile.

---

Thresholds, rates and allowances are indexed or set at fiscal events and are deliberately not quoted here. Check the current figure on GOV.UK.