Cash basis records money when it moves; accrual basis records it when earned or owed. This guide compares the two and explains which suits your business.
Published July 2026 · Updated July 2026
The two 'bases' are just different rules for when a transaction counts. Cash basis follows the bank: if the money has not moved, it does not count yet. Accrual basis follows the activity: income and costs count when earned or incurred, regardless of payment timing.
Cash basis is simple and mirrors your bank balance, which suits many smaller sole traders. HMRC allows eligible small businesses to use it for Self Assessment.
Accrual basis gives a truer view of performance because it matches income and costs to the right period. It is required for most limited companies and better for businesses that invoice on credit or hold stock.
Invoice raised in March, paid in April:
It depends on your size and structure. Many sole traders prefer cash basis for simplicity; growing or credit based businesses usually need accrual. An adviser can confirm what fits.
Yes, but there are rules about how you transition so income and costs are not counted twice or missed.
It can change the timing of when income and costs are taxed, though not usually the total over the life of the business.
Source: GOV.UK ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.