What is Accruals Accounting? UK Definition 2026/27
Quick Answer
Recording income and expenses when they occur, not when money changes hands.
Definition of Accruals Accounting
Accruals accounting (also called traditional accounting) records income when earned and expenses when incurred, regardless of when cash is received or paid. This contrasts with cash basis accounting. Businesses above the VAT threshold or with turnover over £150,000 generally must use accruals accounting.
Accruals Accounting — Key Facts for 2026/27
| Required above | £150,000 turnover |
| VAT registered | Usually required |
| Alternative | Cash basis |
| Complexity | Higher than cash basis |
How Accruals Accounting Works — Example
- 1December: Invoice client £5,000 (work complete)
- 2January: Client pays £5,000
- 3Accruals: Income recorded December (when earned)
- 4Cash basis: Income recorded January (when paid)
- 5Impact: Different tax year for same income
How Accruals Accounting Affects Your Tax
Accruals accounting provides a more accurate picture of business performance but is more complex. It matches income with related expenses in the same period, giving a true reflection of profitability.
Official HMRC Guidance on Accruals Accounting
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Cash basis vs traditional accountingFrequently Asked Questions about Accruals Accounting
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.