Cash Basis Is Now the Default: What It Means for You

A quiet but important change took effect from 2024/25: the cash basis is now the default way most self-employed people and partnerships work out their profits. Here's what that means.

Cash basis vs accruals in one line

• Cash basis: count income when you receive it and expenses when you pay them.
• Accruals (traditional): count income when you invoice it and expenses when you incur them, regardless of payment timing.

What changed in 2024/25

The cash basis existed before but was hemmed in. From 2024/25:

Old restriction	Now
Only available under a turnover cap	Cap removed — available to most sizes
Interest deduction capped at £500	Cap removed
Restrictive loss-relief rules	Aligned much closer to accruals
You had to opt in	It's now the default — you opt out for accruals

The upshot: the cash basis is now a realistic default for the majority of sole traders.

Why the cash basis suits many people

• It's simpler — you're essentially tracking money in and money out.
• No adjusting for debtors and creditors at period end.
• It maps neatly to your bank account, which helps with MTD record-keeping.
• You're not taxed on invoices you haven't been paid for yet.

When accruals may still be better

Consider electing for accruals if you:

• carry significant stock;
• give customers a lot of credit (large unpaid invoices at year-end);
• need accruals accounts for a lender or investor;
• want particular loss-relief treatment.

You make the election on your return/final declaration.

Cash basis and MTD

The cash basis and Making Tax Digital fit together well. Your cumulative quarterly updates report income and expenses on your chosen basis, and because the cash basis tracks actual money movement, it lines up naturally with bank transactions and simple bookkeeping.

For a deeper comparison, see our guide to cash basis vs accruals.

Key takeaways

• From 2024/25 the cash basis is the default for most sole traders and partnerships.
• The old turnover cap, interest limit and loss restrictions were removed.
• Cash basis is simpler and maps well to MTD; accruals still suits stock-heavy or credit-heavy businesses.
• You opt out to accruals if it suits you better.

This article is general information, not tax advice. Check the current rules at gov.uk or speak to your accountant.