The cash basis scheme was launched in 2013 to help sole traders and other unincorporated businesses to benefit from a simpler way of managing their financial affairs. The scheme is open to businesses with a turnover of £81,000 or less. The threshold to use the scheme mirrors the VAT registration threshold. Once a business has entered the cash basis scheme they can continue to report in this way until their income reaches double the VAT threshold (£162,000). The threshold is likely to increase slightly following the 2015 Budget.

The scheme allows qualifying businesses to use the cash basis when recording income and expenditure i.e. recording the flow of money from and to the business based on actual money flows. Traditional accounting uses the accruals basis i.e. income and expenditure is recorded when a bill is received or a customer is invoiced. The scheme can be used by new or existing businesses although existing businesses will probably need to make some adjustments when changing to the cash accounting basis. The scheme is most suitable for straight forward businesses especially those that provide services.

The scheme is not open to limited companies and limited liability partnerships and there is a further list of businesses that cannot use the scheme such as Lloyds underwriters, businesses that have claimed research and development allowance and managed service companies.