Small businesses can record income and expenses only when money is actually paid
You can start to use cash basis if your total business income is Â£81,000 or less a year.
Existing businesses using traditional accounting (accruals basis) might have to make some adjustments when they switch to cash basis. Contact HMRC to find out more.
You don’t have to use cash basis. You can decide if it suits your business.
All payments count - cash, card, cheque, payment in kind or ?any other method. You can ?choose how you record when money is received or ?paid (eg the date the money enters or leaves your account or the date a cheque is written) but you must use the same ?method each tax year.
If your business grows
If you’re using cash basis and your business grows during the tax year you can stay in the scheme up to an income of Â£162,000. Above that you’ll need to use traditional accounting for your Income Tax return for the next tax year.
When cash basis might not suit your business
Cash basis probably won't suit your business if you:
- have losses that you want to set against other taxable income (‘sideways loss relief’ for existing businesses)
- want to deduct interest of more than Â£500
- run a business that’s more complex, eg you’re VAT registered, you have higher levels of stock, you produce detailed accounts for other business reasons
Who can't use the scheme
Limited companies and limited liability partnerships can’t use cash basis.
There are also some specific types of businesses that can’t use the scheme:
- Lloyd's underwriters
- farming businesses with a current herd basis election
- farming and creative businesses with a section 221 ITTOIA profit averaging election
- businesses that have claimed business premises renovation allowance
- businesses that carry on a mineral extraction trade
- businesses that have claimed research and development allowance
- dealers in securities
- relief for mineral royalties
- lease premiums
- ministers of religion
- pool betting duty
- intermediaries treated as making employment payments
- managed service companies
- waste disposal
- cemeteries and crematoria
You can start to use cash basis if you’re VAT registered as long as your income is Â£81,000 or less during the tax year.
You can record your business income and expenses either excluding or including VAT. However, you must treat income and expenses the same way.
If you choose to include VAT, you have to record:
- VAT payments you make to HMRC as expenses
- VAT repayments you receive from HMRC as income.