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Cash basis

The cash basis is the most common type of accounting that self-employed people can use.

With it, you can work out your profit based on when money receive or pay money, instead of when you receive or send an invoice (like you would with traditional accounting).

If you’re self-employed, you can choose between cash basis and traditional accounting. Most of the time cash basis accounting will suit you better because you won’t have to pay Income Tax on money you haven’t actually received yet in your bank account.

You might actually use it without realising it if you are simply keeping track of expenses and income as they happen.

Example of using cash basis:

  • let’s say that John does some work for a client in March 2019
  • John invoices his client on 31st March 2019
  • his client pays him on 10th April
  • if John is using cash basis, he records that income in the Self Assessment for the 2020/2021 year
  • otherwise, if he was using traditional accounting, he would have counted that income for the 2019/2020 tax year instead.

Most self-employed people can use it, except for this list of people.

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