by Asim Abbas
11 November 2026 
Cash basis or accruals? Choosing your accounting method in 2026
Cash basis or accruals? Choosing your accounting method in 2026
Since April 2024, the cash basis has been the default accounting method for sole traders and partnerships, with no turnover limit.
- Cash basis is the default from 2024/25
- There is no turnover limit any more
- Loss and interest restrictions were removed
- You can opt out into accruals on your return
For most small businesses it keeps record-keeping simple, but there are times when the traditional accruals basis gives a better result.
This guide explains both methods, what changed and how to decide which to use.
The two methods
| Cash basis | Accruals basis | |
|---|---|---|
| Income counted | When money is received | When work is done or invoiced |
| Expenses counted | When paid | When incurred |
| Stock and debtors | Ignored | Adjusted at year end |
| Equipment | Usually deducted when paid | Capital allowances |
| Who can use it | Sole traders and partnerships | Everyone, required for companies |
What changed in April 2024
- Cash basis became the default, so you must opt out to use accruals
- The £150,000 entry and £300,000 exit limits were removed
- The £500 cap on interest deductions was removed
- Losses can now be offset against other income and carried back, as with accruals
Limited companies and LLPs still can’t use the cash basis.
Self Assessment tax calculator
Estimate tax on your profit.
How the method affects your profit
A web designer invoices £8,000 for a project in March 2027, but the client pays in May 2027. Under the cash basis, the £8,000 falls into 2027/28, when it’s received. Under accruals, it’s taxed in 2026/27, when the work was done. Cash basis can delay tax when customers pay late.
When accruals may be better
- You hold significant stock
- You want accounts that match how lenders and investors look at profit
- You expect to incorporate and want consistent figures
- Your business has large timing differences between work and payment
When cash basis works well
- You’re a service business with little or no stock
- Clients pay quickly
- You want simple records from your bank feed
- You’re preparing for Making Tax Digital quarterly updates
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179Switching methods
You choose each year on your tax return. When you switch, adjustments are needed so income and expenses aren’t counted twice or missed. Stock and unpaid invoices at the changeover are the usual sources of adjustment.
Cash basis and MTD
Making Tax Digital for Income Tax works with either method. The cash basis is often simpler because quarterly updates can be built from your bank transactions. See our guide to MTD or Self Assessment.
HMRC’s guide to the cash basis sets out the rules. Our bookkeeping service keeps records in the right format, and our SA103 guide shows where the figures go.
What should I do next?
On last year’s return.
Do they matter?
Records that fit.
Frequently Asked Questions
Is cash basis now the default?
Yes, for sole traders and partnerships from 2024/25.
Is there a turnover limit for the cash basis?
No. The limits were removed from April 2024.
Can a limited company use the cash basis?
No. Companies must use the accruals basis.
Can I claim losses on the cash basis?
Yes. The loss restrictions were removed, so cash basis losses can be offset more widely.
How do I opt out of the cash basis?
Tick the box on your Self Assessment return to use accruals.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Ali Imran
I’m Ali Imran, an accountant at Wingate Accountants. I help sole traders, landlords and directors get their returns filed early and accurately, without the last-minute panic.
