Home › Free tools › Cash basis vs traditional accounting

Cash basis vs traditional accounting

See how the same year's money looks under cash basis (record when you get paid or pay a bill) versus traditional accounting (record when you invoice or are billed). For sole traders and partnerships without corporate partners.

What each method does

Cash basis is the standard way for sole traders and partnerships without corporate partners. You only record income when you receive money and expenses when you pay a bill, so you do not pay Income Tax on money you have not yet received (GOV.UK). Traditional accounting records income when you invoice and expenses when you are billed.

Who can use cash basis

Sole traders and partnerships without corporate partners can use it. Limited companies, LLPs and partnerships with a corporate partner cannot. Some specialised trades (for example certain farming elections) are also excluded (GOV.UK).

When traditional accounting may suit better

GOV.UK notes you might choose traditional accounting if the business is complex (for example high stock levels) or if a bank wants to see what you are owed and what you owe before agreeing finance (GOV.UK). If you use traditional accounting, say so on your Self Assessment return.

Related: self-employed tax calculator, trading allowance calculator and Making Tax Digital for Income Tax. Keep records as set out on GOV.UK self-employed records.

Based on GOV.UK, checked 16 October 2026. A teaching comparison, not accounts software.

Questions

Is cash basis still allowed in 2026?

Yes. GOV.UK says it is the standard method for sole traders and partnerships without corporate partners.

Is there still a turnover limit?

GOV.UK's current cash basis pages no longer set a turnover cap for who can use it. Eligibility is about the type of business, not a turnover figure on those pages.

Can a limited company use cash basis?

No.

Does this replace my accounts?

No. It only shows how timing differences can change the profit figure under each method.