Self assessment moving to default cash basis - should I elect to remain on accrual basis?

AspiringPensioner

Hello helpful forumites,

I hope some of you might be able to shed a little light/give me some advice here. This week I thought I'd get stuck into this early and get my 2024-25 self assessment tax return submitted. I had collected my earnings and expenses figures together and was partway through when I noticed the statement from HMRC pointing out that from 2024-25 they have moved to the cash basis accounting method being the default (as opposed to the accrual method which was previously the default). 

I'm a freelance sole trader working as a grassroots music promoter so my self assessment returns are probably straightforward compared to a lot of sole traders - although I don't usually find it that easy to work out! My earnings are low and mostly my tax liability is usually minimal. 

Up to now I've used the accrual basis not only because it was the default, but also because it suits the circumstances of my work, which has involved things like invoicing venues for gig fees, receiving payment sometimes long after the event, sending fees on to artists after a tour has finished (after deducting my commission) etc. I've also managed to get a couple of Arts Council grants, for instance one which partially funded (alongside ticket income and bits of sponsorship) a series of events over an 18-month period. The grant funding covered payment for my work organising and promoting the concerts and community events, but also covered costs including musician/sound engineer fees, printing posters etc. So the accrual basis works better for me in terms of allocating income and expenses at the point of those things actually taking place/me doing the work/expenses being incurred.  

It looks like I can elect to remain on the accrual basis, and I think this would be more straightforward for me and my tax reporting, especially as a) I might want to try and apply for more arts grants to support local music events and b) I'm looking at moving into retirement in the next couple of years. I don't really want to have to learn how to report things in a different way and I'm already slowing down, including getting out of tour booking work.

Is it seen as OK/as simple as just ticking the box to do that?? Just wanted to sense check it with the more knowledgeable people here... any feedback very gratefully received! Thanks

Isthisforreal99

My (possibly limited) understanding is that you can elect for accruals basis for 24/25 but once making tak digtal is mandatory for you it has to be done on the cash basis.

sheramber

From April 2026, individuals with qualifying income above £50,000 will need to keep digital records, use MTD-compatible software and submit quarterly summaries of their income and expenses to HMRC. These digital requirements will help businesses save time through more efficient record-keeping, reduce errors in tax calculations, and provide a clearer picture of their tax obligations throughout the year.

Qualifying income includes gross income from self-employment and property before any tax allowances or expenses are deducted. Those with qualifying income above £30,000 will also be required to use MTD for Income Tax from April 2027. The threshold will then decrease to £20,000 from April 2028.

…,,,,

https://www.gov.uk/government/news/one-year-until-making-tax-digital-for-income-tax-launches

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AspiringPensioner

sheramber said:

From April 2026, individuals with qualifying income above £50,000 will need to keep digital records, use MTD-compatible software and submit quarterly summaries of their income and expenses to HMRC. These digital requirements will help businesses save time through more efficient record-keeping, reduce errors in tax calculations, and provide a clearer picture of their tax obligations throughout the year.

Qualifying income includes gross income from self-employment and property before any tax allowances or expenses are deducted. Those with qualifying income above £30,000 will also be required to use MTD for Income Tax from April 2027. The threshold will then decrease to £20,000 from April 2028

My income is way under £50k and indeed under £20k so none of that applies to me. 

Isthisforreal99

AspiringPensioner said:

sheramber said:

From April 2026, individuals with qualifying income above £50,000 will need to keep digital records, use MTD-compatible software and submit quarterly summaries of their income and expenses to HMRC. These digital requirements will help businesses save time through more efficient record-keeping, reduce errors in tax calculations, and provide a clearer picture of their tax obligations throughout the year.

Qualifying income includes gross income from self-employment and property before any tax allowances or expenses are deducted. Those with qualifying income above £30,000 will also be required to use MTD for Income Tax from April 2027. The threshold will then decrease to £20,000 from April 2028

My income is way under £50k and indeed under £20k so none of that applies to me. 

It will come at some point.

Jeremy535897

MTD is a bit of a red herring, as it is not obligatory to use the cash basis when using MTD, and you are well below the limits anyway.
The traditional (accruals) basis of accounting will generally be better if you buy capital assets, but don't need to write them off in year one, or if people pay your bills more quickly than you pay suppliers, or you have fluctuating stock, or buy assets on HP. You also get accounts that mean something. You have to use the traditional basis if you wish to spread your income using the averaging rules for artists, if these apply.
If you change to the cash basis, you have to make transitional adjustments, or you will count some things twice and miss others out.
You can just tick the box on the tax return to say you are using the traditional basis. It really is that simple.

AspiringPensioner

Jeremy535897 said:

MTD is a bit of a red herring, as it is not obligatory to use the cash basis when using MTD, and you are well below the limits anyway.
The traditional (accruals) basis of accounting will generally be better if you buy capital assets, but don't need to write them off in year one, or if people pay your bills more quickly than you pay suppliers, or you have fluctuating stock, or buy assets on HP. You also get accounts that mean something. You have to use the traditional basis if you wish to spread your income using the averaging rules for artists, if these apply.
If you change to the cash basis, you have to make transitional adjustments, or you will count some things twice and miss others out.
You can just tick the box on the tax return to say you are using the traditional basis. It really is that simple.

Thanks Jeremy. That's basically the feedback I was hoping for, just to double check my understanding. I do not need to use the new MTD system (thankfully) so that doesn't need to form part of my decision. My earnings are/will be below the MTD levels outlined for the next three years and I will likely retire from self employment within that timeframe. 

AspiringPensioner

Isthisforreal99 said:

AspiringPensioner said:

sheramber said:

From April 2026, individuals with qualifying income above £50,000 will need to keep digital records, use MTD-compatible software and submit quarterly summaries of their income and expenses to HMRC. These digital requirements will help businesses save time through more efficient record-keeping, reduce errors in tax calculations, and provide a clearer picture of their tax obligations throughout the year.

Qualifying income includes gross income from self-employment and property before any tax allowances or expenses are deducted. Those with qualifying income above £30,000 will also be required to use MTD for Income Tax from April 2027. The threshold will then decrease to £20,000 from April 2028

My income is way under £50k and indeed under £20k so none of that applies to me. 

It will come at some point.

Well, as I said in my OP, I plan to move into retirement within the next few years (prob within 3 years) so no, I don't think so.

AspiringPensioner

sheramber said:

From April 2026, individuals with qualifying income above £50,000 will need to keep digital records, use MTD-compatible software and submit quarterly summaries of their income and expenses to HMRC. These digital requirements will help businesses save time through more efficient record-keeping, reduce errors in tax calculations, and provide a clearer picture of their tax obligations throughout the year.

Qualifying income includes gross income from self-employment and property before any tax allowances or expenses are deducted. Those with qualifying income above £30,000 will also be required to use MTD for Income Tax from April 2027. The threshold will then decrease to £20,000 from April 2028.

…,,,,

https://www.gov.uk/government/news/one-year-until-making-tax-digital-for-income-tax-launches

.

Ummm, I don't think this is relevant to my question (thankfully) because the MTD thing is not going to apply to me. When I said that my earnings are low and my tax liability minimal, I really mean minimal. So I don't hit the 2028 threshold, much less the 2026 threshold. 

LITRG

Hi AspiringPensioner
We have guidance on our website which explains more about the new cash basis rules and the accruals basis which may be helpful to you: https://www.litrg.org.uk/working/self-employment/calculating-self-employed-profits/accounts-cash-basis and https://www.litrg.org.uk/working/self-employment/calculating-self-employed-profits/accounts-accruals-basis . All the best

MyRealNameToo

Jeremy535897 said:

The traditional (accruals) basis of accounting will generally be better if you buy capital assets, but don't need to write them off in year one, or if people pay your bills more quickly than you pay suppliers

speeds of payment seem an odd thing to bring up on accrual accounting? Normal GAAP standards revenue is recognised when its earned not paid likewise expenses are accrued when incurred not when you finally get round to paying the supplier. Speed of payment is important in cash accounting because thats all about when the money hits the account and leaves the account.