Cash basis or traditional accounting?

Cash basis accounting is an alternative method to prepare your accounts, available to some businesses. The aim of the regime is to simplify accounting for small businesses.

The general idea is that income and expenditure are included in the accounts only when it is paid or received, compared to traditional accounting in which it records income when it is earned and expenses are occured, no matter when they are paid

Where a business buys and sells goods or services on credit, these items will only be included when the cash is paid or received. A business will need to elect to use cash basis accounting by completing a box on the Self Assessment tax return. 

If you run a small business, cash basis accounting may suit you better than traditional accounting.

It depends. It is likely to be simpler in terms of accounts preparation but cash basis just really changes (either delays or brings forward) the time when expenses and income are included. Over the life of the business, it will not alter the amount of expenses or income that are recognised.

It is also worth noting that where an established business moves from traditional accounting to cash basis accounting, there are special rules. The rules are quite fiddly so if you are in this position it is worth speaking to an accountant.

How do I register for cash basis accounting?

You register for cash basis accounting by doing an election on your Self Assessment return. You will need to select on the return whether you are eligible to join and whether you want to report your accounts on this basis.