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.
Here you record your income and expenses regardless if you have actually been paid or not. Basically, use your invoices instead of bank statements.
This is much simpler: just record your income or expenses when you actually receive or pay money in your bank.
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:
For all the other expenses it’s simple: just work them out as you would for cash basis.
HMRC suggests that cash basis accounting is most useful for sole traders offering services: interior decorators, painters, hairdressers, plumbers, Uber drivers, etc.
Second, you might prefer traditional even if you qualify for cash basis:
|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.
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