Traditional or cash-basis accounting?

[Federico Razzoli]

I need to choose the accounting method to use. Before making a choice, I'd like to hear opinions and experiences from you, to have a clearer idea of what are the pros and cons of both methods. Can you please share?

Also, I wan't able to find an information: if I do a choice that is not optimal for me, can I change method later?

[Lance]

I need to choose the accounting method to use. Before making a choice, I'd like to hear opinions and experiences from you, to have a clearer idea of what are the pros and cons of both methods. Can you please share?

Also, I wan't able to find an information: if I do a choice that is not optimal for me, can I change method later?

invoice based accounting gives you a little more control over when you account for something.
For example if you raise an invoice on 31st December and your VAT period ends on the same day you'll have to pay the VAT in that quarter. Whereas is you're cash accounting you pay the VAT in the period you get paid.
Unless cash flow is a problem I'd stick with invoice accounting as you choose when you invoice.

[northernladuk]

Just pick a good contractor accountant that offers Freeagent and follow their very well established processes and you don't have to give it another thought. Works perfectly for many 10's of thousands of contractors.

[Alchemy Accountancy]

I need to choose the accounting method to use. Before making a choice, I'd like to hear opinions and experiences from you, to have a clearer idea of what are the pros and cons of both methods. Can you please share?

Also, I wan't able to find an information: if I do a choice that is not optimal for me, can I change method later?

For your actual accounts (and therefore Corporation Tax), your accounts must be prepared on an accruals basis - you have no choice.

If you are talking about VAT - the cash accounting scheme benefits your cash flow in that VAT is only paid on invoices that have actually been paid, and so, if an invoice never gets paid then there is no need to wait 6 months in order to claim bad debt relief on the unpaid invoice (reclaim the VAT paid over) - that said, I have not really seen this be an issue for contractors.

Just pick a good contractor accountant that offers Freeagent and follow their very well established processes and you don't have to give it another thought. Works perfectly for many 10's of thousands of contractors.

I agree with this, if you don't already have an accountant.

[Federico Razzoli]

I'm not sure what you mean about VAT. I am not yet registered for a VAT (I will when I have to), but I was talking about this:

Cash basis - GOV.UK

Accountants have a cost, but that could be fine. My real concern is if I get help (which means that we spend time talking when I don't understand something, and I don't receive pasted emails that have nothing to do with my specific case) or if I'm just bound to their well established processes.

The consideration about invoice date flexibility sounds like a very good point.

[TheCyclingProgrammer]

Are you self employed? You can only use cash basis if you are. As stated above Ltd company accounts must be prepared on an accruals basis.

[Alchemy Accountancy]

I'm not sure what you mean about VAT. I am not yet registered for a VAT (I will when I have to), but I was talking about this:

Cash basis - GOV.UK

Accountants have a cost, but that could be fine. My real concern is if I get help (which means that we spend time talking when I don't understand something, and I don't receive pasted emails that have nothing to do with my specific case) or if I'm just bound to their well established processes.

The consideration about invoice date flexibility sounds like a very good point.

The link that you have provided gives a good a summary about pros and cons of preparing accounts on a cash basis, if the option is available to you (i.e. you are not an incorporated business). If you aren't incorporated, then there may be benefits of incorporation that outweigh the benefits of being able to keep records on a cash-basis.

If you are going to appoint an accountant, and I would suggest that the benefits to this would outweigh the cost (though I would say that), speak to a couple to get a feel for what you get for your money - qualifications and sector experience would be good things to question as a start. Perhaps if you tell them a bit about your specific circumstances, then they would be able to give some no-obligation advice on cash vs accruals basis (again, if unincorporated), or costs/benefits to trading as a limited company vs a sole trader.