Sole Traders: How to use Cash Basis accounting

For sole traders, 10 Minute Accounts works with cash basis accounting.

This is a HMRC scheme intended to make it easier to calculate your returns. With cash basis, all permissible expenses and revenues are included in the year in which the transaction is made. You do not need to keep a stock count, nor do you need to make adjustments for invoices that have been issued but not yet paid.

With regards stock: Cash Basis accounting means that stock is accounted for in the year it is purchased, rather than when it is sold. You classify stock purchases as an expense. You do not need to value stock at the beginning and end of the year.

You can start to use cash basis accounting if you are a sole trader, with a turnover of under £150,000. You would need to leave the scheme if, in your previous year, you had a turnover of over £300,000.

To file a self assessment return using Cash Basis, complete your return as normal, ensuring you have ticked the Cash Basis box.

For more information on cash basis accounting, please see the HMRC advice at: https://www.gov.uk/government/publications/how-to-calculate-your-taxable-profits-hs222-self-assessment-helpsheet

And just to note: if you have not used Cash Basis accounting in the past, please see Working Sheet 1 (select the relevant year) for a one-time calculation you would need to make in the first year you use cash basis: https://www.gov.uk/government/publications/how-to-calculate-your-taxable-profits-hs222-self-assessment-helpsheet