Up until recently, FreeAgent only calculated accounts using traditional ‘accruals’ accounting. Now, sole traders and partnerships have the option for their accounts to be calculated using cash basis accounting instead.
What is cash basis accounting?
Cash basis accounting is an accounting method that allows certain businesses to record their income and costs at the date the money comes in or is paid out, rather than the date displayed on an invoice they issue or bill they receive.
Find out more about cash basis accounting on gov.uk.
Important points to note on cash basis accounting
- You can switch your existing account from accruals to cash basis accounting.
- HMRC only permits cash basis accounting to be used by sole traders, unincorporated landlords and partnerships with a turnover of £150,000 or less per year. It’s not possible to use cash basis accounting to prepare accounts in FreeAgent for a limited company or limited liability partnership, or for any business based outside the UK.
- Cash basis accounting is different from using the cash basis to prepare your VAT returns, so please check with your accountant if you’re unsure which basis you should be using for your accounts.
Find out more about FreeAgent’s cash basis support over on the Knowledge Base.