Business setup

Pexels Mikhail Nilov 6893921

Recordkeeping might not be the most exciting part of running a business, but it’s absolutely essential. Whether you're a sole trader, limited company, or freelancer, the UK’s tax authority—HMRC—requires you to keep accurate and accessible records.

Failing to do so can result in penalties, compliance headaches, or worse—HMRC investigations. But don’t worry. This guide breaks it down in plain English.

1. What Records You Must Keep (And for How Long)

The type of records you need to keep depends on your business structure, but here are the basics HMRC expects from everyone:

📌 Sales & Income Records

Invoices and receipts
Bank statements showing incoming payments
Details of cash sales or card payments

📌 Business Expenses

Purchase receipts
Utility bills, rent, subscriptions
Travel and mileage logs
Staff wages and contractor payments

📌 Tax and Accounting Records

VAT records (if registered)
PAYE records (if you employ staff)
Corporation Tax filings (for limited companies)
Self-Assessment submissions (for sole traders)

🕒 How Long Do You Have to Keep Records?

Sole traders & partnerships: At least 5 years after the 31 January submission deadline of the relevant tax year
Limited companies: At least 6 years from the end of the relevant financial year
VAT records: At least 6 years, or 10 years if using the VAT MOSS scheme

💡 Pro Tip: Even if you close your business, HMRC still expects you to keep records for the full retention period.

2. Digital vs. Paper Recordkeeping

Paper Records

✔️ Acceptable—but come with risks: fading, loss, or damage
✔️ Must be legible, well-organised, and accessible upon request

Digital Records

✔️ Required under Making Tax Digital (MTD) for VAT-registered businesses
✔️ Must include digital copies of invoices, receipts, and all relevant data
✔️ Can be stored on your computer, cloud platforms, or mobile apps

💡 Important: Scanned or photographed paper receipts are valid digital records, as long as they are clear and accessible.

🔗 Learn more: Making Tax Digital

3. Best Practices for Managing Business Records

Good recordkeeping doesn’t just keep HMRC happy—it also helps you stay on top of your business finances. Here’s how to do it well:

✅ Separate Personal and Business Finances

Open a dedicated business bank account to keep transactions clean and avoid confusion at tax time.

✅ Label and Categorise Everything

Use consistent file names, folders, and categories (e.g., “Expenses > 2024 > Software Subscriptions”).

✅ Digitise as Much as Possible

Scan paper receipts as you get them. Use your phone camera or a receipt scanner to avoid piles of paperwork.

✅ Update Weekly

Don’t wait until tax time. Set a weekly reminder to record income, expenses, and save supporting documents.

✅ Back Up Your Records

Whether stored locally or on the cloud, make sure you have a backup copy in case of hardware failure or file corruption.

4. Tools to Help You Stay Organised (and MTD-Compliant)

You don’t need to be a spreadsheet wizard to manage your records effectively. There are plenty of user-friendly tools that can help with (MTD = Making Tax Digital abbreviation):

✔️ Digital receipt capture (just snap a photo!)
✔️ Bank feed integration
✔️ VAT tracking and filing (for MTD)
✔️ Easy export for your accountant or HMRC

📌 Two widely used options in the UK:

Dext (formerly Receipt Bank) – Ideal for snapping receipts, auto-categorising expenses, and syncing with accounting systems.
FreeAgent – Offers invoicing, bank reconciliation, and MTD-compatible VAT filing for freelancers and small businesses.

💡 Pro Tip: Choose software that is HMRC-recognised for Making Tax Digital and supports mobile apps so you can manage records on the go.

🔗 Check the full list of approved tools: HMRC MTD Software Directory

Final Thoughts

Accurate, consistent recordkeeping is a non-negotiable part of running a business in the UK.

✅ It keeps you compliant with HMRC
✅ It simplifies tax returns and audits
✅ It helps you make better financial decisions year-round

And with the right habits and tools in place, it doesn’t have to be a chore.

🔹 Take 30 minutes today to review your recordkeeping setup—and save yourself hours of stress later.

Business Recordkeeping: What HMRC Expects