Who can use cash basis

You can use cash basis if you’re a sole trader or partnership without corporate partners.

If you have more than one business, you can choose whether you use cash basis or traditional accounting for each business.

Who cannot use cash basis

You cannot use cash basis if your business is a:

  • limited company
  • limited liability partnership
  • partnership with one or more corporate partners

You also cannot use cash basis if you’re a:

  • Lloyd’s underwriter
  • farming business with a current herd basis election
  • farming or creative business with a fluctuating profit averaging claim
  • business that has claimed business premises renovation allowance within the previous 7 years
  • business that carries on a mineral extraction trade
  • business that has ever claimed research and development allowance

When cash basis might not suit your business

Some businesses may choose to use traditional accounting instead because it means they can use different rules to calculate their profits. These rules apply if the business:

  • deals in securities
  • claims relief for mineral royalties
  • leases premiums
  • is a minister of religion
  • pays pool betting duty
  • is an intermediary treated as making employment payments
  • is a managed service company
  • makes waste disposals
  • is a cemetery or crematoria

If you use cash basis you’ll not be able to use these rules.

If you cannot use cash basis

If you cannot use cash basis, you’ll need to use traditional accounting to work out your taxable profits.

When you send your Self Assessment tax return you’ll need to say that you’ve used traditional accounting.

Talk to a tax professional (such as an accountant) or legal adviser if you need help.