What is cash basis?
TAXO’D works best if you use cash basis. From the 2013–14 tax year, you had the option to use cash basis accounting. It’s a simpler way to work out your finances compared to the traditional method.
- With cash basis, you record your transactions on the date money actually comes in and goes out of your business.
Let’s break it down some of the cash-basis key points
- you only record income when it’s received
- you only record expenses when they’re paid
- payments for equipment, including vans, are allowable expenses (rather than capital allowances)
- you can’t claim capital allowances for anything except cars
- a maximum of £500 is allowed as an expense for interest paid on loans or borrowing
- losses you make can’t be set off against any other income
- If you have more than one business and you use cash basis, you must use the cash basis for all of them
payments for equipment, including vans, are allowable expenses (rather than capital allowances)
Pro tip: You can use the cash basis if you are a self-employed business (sole trader or partnership) and your turnover is £83,000 or less for the year, (also the threshold when you have to register for VAT).
This limit increases to £158,000 if you claim Universal Credit.
Traditional (accrual) accounting
- With traditional accounting, you record when money is spent, earned, paid or invoiced. So even if you haven’t been paid yet, you record income the day you sent your invoice.