Self-employed: cash basis or traditional accounting?

When you register as self-employed with HMRC you'll have to choose which type of accounting you prefer: cash basis or traditional. Let's look at the differences and see which one is best for you.

Traditional accounting

Here you record your income and expenses regardless if you have actually been paid or not. Basically, use your invoices instead of bank statements.

For example:

  • You invoice a customer on March 25th 2018 (2017/18 tax year).
  • Customer pays you on April 18th 2018 (2018/19 tax year).
  • You must file this in the 2017-2018 tax year tax return. Not 2018-2019.

Cash basis accounting

This is much simpler: just record your income or expenses when you actually receive or pay money in your bank.

Same example:

  • You invoice a customer on March 25th 2018 (2017/18 tax year).
  • Customer pays you on April 18th 2018 (2018/19 tax year).
  • With cash basis, you must file this in the 2018-2019.

The Simplified Expenses Scheme

Thisis a way of calculating some of your business expenses using flat rates. You can choose only if you also use cash basis.

You can use flat rates for:

  • business costs for cars
  • working from home

For all the other expenses it’s simple: just work them out as you would for cash basis.

Which one should you choose?

HMRC suggests that cash basis accounting is most useful for sole traders offering services: interior decorators, painters, hairdressers, plumbers, Uber drivers, etc.

However.

  • Are you making more than £83,000 per year? You cannot choose cash basis.
  • Are you using cash basis and have income bigger than £162,000? You must switch to traditional accounting.

Second, you might prefer traditional even if you qualify for cash basis:

  • Are you making a loss and have other income as well? Only traditional accounting lets you offset those losses - and pay less tax.
  • Do you need to register for VAT? Traditional accounting makes claiming VAT much easier.

Main differences at a glance

Question Cash basis Traditional accounting
How do I claim equipment, like software or a computer? Claim them as allowable expenses Deduct them as claimable allowances
Are my loans deductible? Only up to £500 - and only for the interest part, not the actual repayments You can claim them in full
Can I claim my car? Claim it as a capital allowance (and the fuel, etc. as expenses) or use simplified rates for mileage. You can deduct it as capital allowance
What if I have customers who don’t pay? You cannot write them off as “bad debts” You can write them off against your revenue
What happens if I make losses from self-employment? You cannot offset these losses against income from other sources (like employment) You can offset these losses in full

For more information, you can check here what else counts as an allowable expense.

Need help with your tax return?

Get your self assessment prepared for you online by certified accountants for £99

Online self assessment preparation assisted by professional accountants

How TaxScouts works

Simple online tax assessment

1. Simple online tax assessment

Our online tax-bot will go over your tax situation and will make sure you won’t overpay your taxes.

Chat to human advisors

2. Chat to human advisors

You can talk to one of our tax assistants at any time during the process when you have any questions.

We’ll sort your documents online

3. We’ll sort your documents online

We’ll tell you exactly what documents you need and sort them for you online. You just upload them or snap a picture with your phone.

Everything gets prepared for you

4. Everything gets prepared for you

Your certified accountant will go over your details & prepare your tax return for you to review. It will be filed on your behalf once you approve it.

"Superb app, team & accountant"
They sorted everything for me. A pleasure to do taxes this way!
Henrik B
"Brilliant service"
Surprised by how easy the process was. Additionally it's saved me money, so all round a win.
Jo B
"Absolutely outstanding"
Absolutely outstanding service - very quick turnaround, all my questions answered almost immediately and brilliant value.
Aimee J

Who our service is for

First time tax filers

We have a simple online service that guides you through the entire process. Regardless of your reasons for doing your tax return we'll help you get it done right.

Construction workers

We'll prepare your self assessment and help to maximise your CIS tax refund. We have the lowest fees in the industry and you don't have to pay up front if you're eligible for a refund.

People living overseas

Our service allows people living abroad to prepare their income tax return online. We are able to process all returns regardless of your current country of residence.

Company directors

UK company directors are required to file their self assessment annually. TaxScouts handles this through a simple online process.

Landlords

Long Lets, Airbnb, Capital Gains. TaxScouts will sort out your self assessment and take away the worry of tracking all the recent tax changes.

Self-employed

TaxScouts ensures the self employed don't overpay on their taxes. We'll help you benefit from all the tax breaks and deductions that can be applied to your return.

And for everyone else who needs to do their self assessment

At TaxScouts we appreciate that tax returns are highly individual. Before you get assigned an accountant we make sure to understand your circumstances and help you build your optimal tax profile.

Let's start by creating your account
Let's get your taxes done

What will happen next

  • We'll guide you through a few questions about your income and suggest related tax deductions
  • Then we'll tell you what documents are needed
  • Finally certified accountant will prepare and file the tax return with HMRC for you
You are using an outdated web browser – TaxScouts works best with modern browsers. Please upgrade here.