Sarah Bradford explains what the change in the default basis of accounts preparation means for unincorporated businesses.
Unincorporated businesses, such as sole traders, can prepare their accounts using either the accruals basis or the cash basis. Prior to 2024/25, the accruals basis was the default basis; traders could only use the cash basis if they passed the eligibility tests and elected to do so.
However, this has all changed. The cash basis is now the default basis – the restrictions have been lifted and traders wishing to use the accruals basis must now elect to do so.
Nature of the cash basis
The cash basis is a simple method for working out a trader’s taxable profits. The computation only takes account of cash in and cash out – no adjustment is made for money owed by or to the business. Income is only recognised when received, and
