Cash basis against traditional accounting: the difference, and which one to use

In the UK, the cash-basis rules for property income are income-tax rules, so they are not different for England, Wales, Scotland or Northern Ireland. For landlords, the practical question is usually whether to accept the statutory cash-basis default or opt out into traditional accounting.

What is the difference between cash basis and traditional accounting?

Cash basis taxes rental receipts and relieves property expenses when the money is actually received or paid, while traditional accounting uses accruals under generally accepted accounting practice, so income and expenses are recognised when earned or incurred rather than only when cash moves. The statutory cash-basis rule says: “In calculating the profits, receipts of the business are brought into account at the time they are received, and expenses of the business are brought into account at the time they are paid.” Traditional accounting, also called the accruals basis or standard accounting method in Self Assessment, is the opposite timing model: rent due before 5 April can belong in that tax year even if paid later, and an expense can be recognised when the liability arises rather than when the bill is settled. For a landlord, the difference is therefore not the type of cost but the tax year in which the rent or expense appears.

Should a landlord use the cash basis or accruals?

Cash basis is the statutory default for a qualifying landlord, so “cash basis or accruals” really means whether to stay in the default or opt out into traditional accounting on the tax return. The legislation says property-business profits “must be calculated on the cash basis if none of conditions A, B, C, D or E in section 271A is met,” and one of those conditions is an election out for the tax year. In practice, cash basis usually suits a straightforward landlord because it follows bank movements and rent actually received; accruals is normally cleaner where arrears, prepayments, large invoices, joint structures, finance reporting or accounting consistency matter more than simplicity. HMRC publishes no official split showing how many landlords use each method, so the decision should be made from the business records, not from a supposed market norm. Abodient can track rent due against rent received and hold tax-return figures, which matters because the accounting method changes which year those figures fall into.

Is there an income threshold for using the cash basis?

The cash-basis income threshold is exactly £150,000 of cash-basis receipts for the tax year, and that figure is reduced pro rata if the property business runs for only part of the tax year. The legislation states that “Condition B is that the cash basis receipts for the tax year exceed £150,000,” and adds that “If the property business is carried on for only part of the tax year, the sum given in subsection (4) is proportionately reduced.” That means the relevant test is not profit, taxable income after expenses, salary, dividends, capital gains or the property’s value; it is cash-basis receipts from the property business. The threshold also should not be rounded into “up to £150k” if precision matters, because exceeding £150,000 is the statutory condition. In practice the ceiling will not affect most small landlords: HMRC’s 2023 to 2024 property-rental statistics say nearly half of landlords declared property income of £10,000 or below.

Can you switch between cash basis and accruals, and how?

Switching between cash basis and accruals forces transitional adjustments so the same rent or expense is not taxed or relieved twice; a positive adjustment on leaving cash basis defaults to a six-year spread, but the landlord can elect to accelerate it. HMRC’s manual says that when someone “enters or leaves the cash basis, transitional rules are used to adjust for accrued income and expenses and payments in advance,” and that the adjustment income is “spread over six tax years” at one sixth per year. The opt-out from cash basis is made on the Self Assessment return: HMRC says that if you meet the criteria but prefer standard accounting methods, “you must check the box on your return to opt-out of the cash basis.” The election deadline is one year after the normal Self Assessment filing date for the relevant tax year. Transitional rules apply to an existing business changing method, not to a property business that started in 2017–18 or later, and a switch takes effect from a new tax year rather than mid-year.

Last reviewed August 2026.

Sources

• ITTOIA 2005 s.271D(2) — “In calculating the profits, receipts of the business are brought into account at the time they are received, and expenses of the business are brought into account at the time they are paid.” Source
• ITTOIA 2005 s.271B(1) — “In this Part, references to calculating the profits of a property business in accordance with GAAP are to calculating the profits in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes.” Source
• ITTOIA 2005 s.271C — “The profits of a property business for a tax year must be calculated on the cash basis if none of conditions A, B, C, D or E in section 271A is met.” Source
• ITTOIA 2005 s.271A(10) — “Condition E is that an election under this subsection made by the person who is or has been carrying on the property business has effect in relation to the business for the tax year.” Source
• ITTOIA 2005 s.271A(4) — “Condition B is that the cash basis receipts for the tax year exceed £150,000.” Source
• ITTOIA 2005 s.271A(6) — “If the property business is carried on for only part of the tax year, the sum given in subsection (4) is proportionately reduced.” Source
• HMRC Property Rental Income Statistics 2024 — “Nearly half of the landlords declared property income of £10,000 or below in 2023 to 2024.” Source
• HMRC guidance on working out rental income — “If you meet the criteria but do not want to use the cash basis and prefer to use standard accounting methods you must check the box on your return to opt-out of the cash basis.” Source
• ITTOIA 2005 s.271A election deadline — “An election under subsection (10) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.” Source
• HMRC Property Income Manual PIM1098 — “When a person enters or leaves the cash basis, transitional rules are used to adjust for accrued income and expenses and payments in advance.” Source
• HMRC Property Income Manual PIM1098 — “This is spread over six tax years starting in the first period after leaving the cash basis, so that one sixth of the adjustment income is charged to tax each year.” Source
• HMRC Property Income Manual PIM1098 — “The election must be made on or before the first anniversary of the filing date for the tax year for which the election relates.” Source
• HMRC Property Income Manual PIM1098 — “These rules do not apply if a new property business commences during the 2017-18 tax year or later.” Source
• Jack Ross Chartered Accountants — “You can switch from cash basis to accruals (or vice versa) at the start of a new tax year.” Source