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The short answer
GOV.UK now describes the cash basis as the standard way for sole traders to record income and expenses: you record income when the money arrives and costs when you pay them. For naira fees from Nigerian clients, that means you record the pounds value of what you actually received, on the day it arrived. Traditional accounting (accruals) records income when you invoice; you must say on your return if you use it, and it suits more complex businesses or those needing finance.
The two methods in one line each
- Cash basis
- Income counts when you receive the money; expenses when you pay them. GOV.UK: you do not pay Income Tax on money you have not yet received.
- Traditional (accruals)
- Income counts on the date you invoice; expenses on the date you are billed. More records, and you say on your Self Assessment return that you used it.
GOV.UK's cash basis page calls the cash basis the standard way to record income and expenses for sole traders and partnerships without corporate partners, and its contents include a separate section for the rules before 6 April 2024. In practice, traditional accounting is the one you have to opt into: GOV.UK says you must state on your Self Assessment return that you used it.
Who cannot use the cash basis
GOV.UK's eligibility page lists, among others, limited companies, limited liability partnerships, partnerships with a corporate partner, Lloyd's underwriters and some farming and creative businesses with particular elections. If you have more than one business, you can choose the method for each one. Most freelancers working for Nigerian clients as sole traders can use it.
Why the cash basis suits naira income
Naira income raises two timing questions: when the client actually pays, and what the naira is worth in pounds at that point. The cash basis answers both with one date, the day the money lands.
- Late payers. Nigerian clients sometimes pay weeks or months after invoice, particularly if they must source foreign currency. On the cash basis, nothing is taxed until it arrives.
- Currency moves. If the naira weakens between invoice and payment, the cash basis already uses the smaller pound figure you received. There is no separate exchange loss to work out.
- Clients who never pay. On the cash basis an unpaid invoice was never income, so there is nothing to write off. HMRC's Business Income Manual says its bad debts chapter does not apply to businesses using the cash basis.
Recording a naira receipt
On the cash basis, record the date, the client, the invoice it settles, the naira amount, and the pounds figure. For the pounds figure, use a consistent method. HMRC publishes average and monthly exchange rates through the UK Trade Tariff service. If you convert the naira to pounds as soon as it arrives, the pounds you actually received are a clear and defensible figure. If you keep the naira for a while, use a published rate for the date or month of receipt and stick with it.
| Date | Client | Invoice | NGN received | Rate used (example) | GBP recorded |
|---|---|---|---|---|---|
| 12 Mar | Lagos agency | INV-031 | ₦1,600,000 | ₦2,000 per £1 | £800.00 |
| 30 Apr | Abuja start-up | INV-034 | ₦900,000 | ₦2,100 per £1 | £428.57 |
The rates in the table are illustrative, not current rates. Check the figure for your own dates in HMRC's published rates or your conversion record.
When traditional accounting fits better
GOV.UK says businesses that are more complex, such as those with high levels of stock, or that need finance may choose traditional accounting, because banks may ask for accounts prepared that way. A freelancer with a long-term retainer, large invoices or a plan to borrow may want accounts that show what is owed as well as what has been paid.
The cost is complexity with foreign currency. Under traditional accounting, a naira invoice is income on the invoice date. If the client pays later and the naira has moved, the pounds you receive differ from the income you recorded, and that difference has to be dealt with in the accounts. If the client never pays, you need the bad debt rules. See when the naira falls before the client pays and writing off a bad debt from a Nigerian client.
Switching
You can move between the methods, but GOV.UK warns that you may need to make adjustments when you switch, so income and costs are not counted twice or missed. If you plan to switch, take advice for that year.
What to check first
- Check you are eligible for the cash basis (most sole traders are).
- Decide whether a lender or a complex business means you need traditional accounts.
- Set a rule for converting naira receipts to pounds and write it down.
- Keep the naira amount and the pound figure for every receipt.
- If using traditional accounting, tick the box on your return and keep a list of unpaid invoices.
Where Pryme fits
On the cash basis, your bank statement is the backbone of your records. A Pryme Business Account shows naira and pound receipts in their own currencies with the date each arrived, and conversions with Swap show the rate and fee on their own lines, which gives you a record of the pounds you actually got. See business multicurrency accounts and the Finance agent.
Questions people ask
Is the cash basis the default for sole traders now?
GOV.UK describes it as the standard way for sole traders to record income and expenses. You must say on your return if you use traditional accounting instead.
How do I record naira income on the cash basis?
Record it on the date received, with the naira amount and a pound figure worked out with a consistent method, such as the pounds actually received on conversion or HMRC's published rate.
Do I pay tax on a Nigerian invoice that has not been paid yet?
Not on the cash basis. GOV.UK says you do not pay Income Tax on money you have not yet received.
When should I use accruals instead?
GOV.UK says complex businesses or those needing finance may choose traditional accounting, as banks may ask for accounts prepared that way.
Sources
- GOV.UK: Cash basis (page updated 5 Oct 2026) · accessed Oct 2026
- GOV.UK: Cash basis, who can use it · accessed Oct 2026
- HMRC average exchange rates, UK Trade Tariff · accessed Oct 2026
- HMRC Business Income Manual BIM42700: bad and doubtful debts, contents (updated 4 Aug 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.