Quick answer
Cash basis means recording income when you’re paid and expenses when you pay them. It’s been the default for sole traders since 2024/25, and for landlords unless their property income is over £150,000. It works the same way under MTD for Income Tax, and you can opt for traditional accounting if it suits you better.
How it works
You record income on the date the money arrives and expenses on the date you pay. You don’t need to track invoices you’ve sent but haven’t been paid for, or bills you’ve received but haven’t paid.
Who uses it by default
Sole traders, since the 2024/25 tax year
Landlords, unless their property income is over £150,000
When traditional accounting may be better
You give customers long credit terms, so income arrives well after the work
You hold significant stock
You want to claim losses against other income more flexibly
Effect on qualifying income
If you’re VAT-registered and include VAT in your cash basis income, that VAT counts in your qualifying income.
See MTD for sole traders.