If you’re self-employed or working under the CIS scheme, managing your tax records might feel like a daunting task. But did you know that using the cash basis for Self Assessment can make things a lot simpler?
In this guide, we’ll explain what the cash basis is, how it works, who’s eligible, and whether it’s right for your business.
What is the cash basis?
The cash basis accounting method allows self-employed individuals to record income and expenses only when money is received or paid not when invoices are issued or bills are received.
This is an alternative to traditional (accrual) accounting, where you must record income and expenses when they’re invoiced or billed, regardless of when cash actually changes hands.
Who can use the cash basis?
The cash basis is perfect for:
- Sole traders
- CIS subcontractors
- Self-employed individuals
- Small businesses with income under £150,000/year
Note: If your income exceeds £150,000, you must switch to traditional accounting unless HMRC permits otherwise.
Key features of the cash basis
| Feature | Cash Basis | Traditional Accounting |
|---|---|---|
| Income recorded | When received | When invoiced |
| Expenses recorded | When paid | When billed |
| Simpler record keeping | ✔ Yes | ✖ More complex |
| Easier cash flow tracking | ✔ Yes | ✖ Not always reflective of bank balance |
Should you use the cash basis?
The cash basis can be ideal if:
- You’re a small business or subcontractor
- You want to keep your accounting simple
- You prefer tracking actual cash in and out
- You don’t have large capital investment needs
How the cash basis works with CIS
Many CIS workers benefit from the cash basis because:
- Payments are irregular
- Deductions are made before receiving income
- Simpler records = less admin
You only record income after you receive it, and expenses when you actually pay for them, helping align your bookkeeping with your bank statements.
What you need to track
If you choose the cash basis, here’s what you should keep:
- Bank statements
- Invoices and receipts (paid ones only)
- Mileage logs and work expenses
- Proof of CIS deductions
Need help tracking this? Tax2u’s tools and expert support can make the process painless.
Switching between methods
If you’re currently using traditional accounting and want to switch to cash basis, you can do so when completing your next Self Assessment return. HMRC will ask for your chosen accounting method just select “cash basis”.
However, you may need to make transitional adjustments if changing methods, to avoid double-counting or missing income/expenses.
Need help with your Self Assessment?
At Tax2u, we help CIS workers, sole traders, and self-employed people make sense of their tax return including choosing between cash basis or traditional accounting.
We’ll help you:
- Maximise your expenses
- Stay HMRC compliant
- Avoid penalties
- Claim back any overpaid tax
Get Started with Tax2u Today – It’s fast, easy, and fully supported by real experts.