Cash Basis vs Traditional Accounting — Which Should You Use as a UK Sole Trader?

Published April 2026 · 8 min read · By Solofold

If you're a UK sole trader, the way you record your income and expenses matters — not just for your own understanding, but because HMRC requires you to use a consistent method when calculating your taxable profit.

There are two methods: cash basis and traditional accounting (also called accruals accounting). Since April 2024, HMRC made cash basis the default for most sole traders. But that doesn't mean it's right for everyone.

This guide explains the practical difference between the two, which one makes your bookkeeping simpler, and when you might want to deliberately choose traditional accounting instead.

What changed in April 2024?

Before April 2024, cash basis was opt-in — you had to actively choose to use it, and you could only do so if your annual turnover was under £150,000. From the 2024-25 tax year onwards, cash basis became the default method for all eligible sole traders. You now have to actively opt out if you want to use traditional accounting instead.

This is a significant change. If you haven't thought about your accounting method, you're almost certainly on cash basis now — and that's probably fine. But you should understand what that means for your records.

Cash basis: how it works

Under cash basis, you record income when you actually receive the money, and expenses when you actually pay them. The date the money hits your account is what matters — not the date you raised the invoice or received the bill.

Cash basis works well for most freelancers and sole traders because it mirrors the way you actually think about money. The records you need are straightforward — your bank statements largely tell the story. You don't need to track outstanding invoices or unpaid bills separately for tax purposes.

One important difference with cash basis: equipment and tools you buy for your business can be claimed as a normal allowable expense in the year you pay for them. Under traditional accounting, larger equipment purchases have to be treated as capital allowances and depreciated over time. Cash basis simplifies this significantly.

Traditional accounting: how it works

Under traditional accounting (accruals basis), you record income when it's earned — when you raise the invoice — and expenses when they're incurred — when you receive the bill. The date money actually moves is less relevant.

Traditional accounting requires you to track debtors (money you're owed) and creditors (bills you owe) as part of your records. This is more complex but gives a more accurate picture of your business's financial position at any point in time.

Which one should you use?

For most UK freelancers, coaches, consultants, and sole traders providing services, cash basis is simpler and perfectly adequate. You'll spend less time on bookkeeping, your records are easier to verify, and the tax outcome is straightforward.

Stick with cash basis if: you're a sole trader providing services, you get paid promptly (within the same tax year you invoice), your expenses are relatively straightforward, and you don't carry significant stock or equipment.

Consider traditional accounting if: you frequently invoice clients at year end and receive payment in the following tax year, you hold significant stock, you have major capital investments you want to depreciate more strategically, or your accountant specifically recommends it for your circumstances.

One practical note: if your turnover grows beyond £300,000, you'll need to switch to traditional accounting regardless. Below that threshold, the choice is yours.

What you cannot use cash basis for

Cash basis isn't available to everyone. According to HMRC, you cannot use cash basis if your business:

• Is a limited company or limited liability partnership
• Is a Lloyd's underwriter
• Is a farming business with a herd basis election
• Has ever claimed Research and Development Allowance
• Has claimed Business Premises Renovation Allowance in the last 7 years
• Carries on a mineral extraction trade

If none of those apply, cash basis is almost certainly available to you.

Keeping your records properly

Whichever method you use, HMRC requires you to keep records of all business income and expenses. You must be able to produce these records if HMRC asks to check them — typically for up to five years after the Self Assessment deadline.

Under cash basis, your records need to show: the date money was received and paid, what each payment was for, and that it was a genuine business transaction. Your bank statements are your primary evidence, supplemented by invoices and receipts.

The key principle — regardless of method — is consistency. You must use the same approach each tax year, and if you switch, you need to make the appropriate adjustments to avoid counting any income or expense twice.