Good records are the least exciting part of running a business and one of the most valuable. They make tax returns quicker, help you spot problems early and protect you if HMRC asks questions. With Making Tax Digital now covering VAT and rolling out to Income Tax, keeping records digitally is moving from good practice to a requirement for many businesses. This guide explains what records you need to keep, how long to keep them, and a simple digital system that works for most small businesses. It is general information, not personal advice.

Why records matter

HMRC may check your records to make sure you are paying the right amount of tax. GOV.UK says this for both the self-employed and limited companies. Beyond compliance, up-to-date records tell you whether you are actually making money, who owes you, and what is coming up.

What sole traders and partners must keep

GOV.UK says you must keep records of your business income and expenses for your Self Assessment tax return if you are a sole trader or partner in a business partnership. You also need records of your personal income.

In practice, that usually includes:

  • sales invoices and records of all money received
  • receipts for business purchases and expenses
  • bank statements, including for any personal account you use for business
  • records of any money you take out of the business for yourself
  • mileage logs and records of business use of home or vehicles if you claim for them
  • VAT records if you are registered

Accounting method

From the 2024 to 2025 tax year, GOV.UK says cash basis is the default accounting method for the self-employed. You record income when you receive it and expenses when you pay them. You can opt out and use traditional accounting, where you record income and expenses by the date you invoiced or were billed.

What limited companies must keep

GOV.UK sets out that limited companies must keep records about the company itself, such as shareholders, resolutions and loans secured on company assets, and accounting records including:

  • all money received and spent by the company
  • details of assets owned by the company
  • debts the company owes or is owed
  • stock at the end of the financial year and the stocktakes used to work it out
  • all goods bought and sold, and who they were bought from and sold to (unless you run a retail business)

You must also keep any other records needed to prepare your annual accounts and Company Tax Return, such as receipts, invoices, contracts, till rolls and bank statements.

GOV.UK warns that a company can be fined 3,000 pounds by HMRC, or directors disqualified, for not keeping accounting records.

How long to keep records

| Business type | Minimum period | | --- | --- | | Sole traders and partners | At least 5 years after the 31 January submission deadline for the relevant tax year | | Limited companies | 6 years from the end of the last company financial year they relate to |

Sources: GOV.UK on self-employed records and company records.

GOV.UK's example for sole traders: if you sent your 2022 to 2023 tax return online by 31 January 2024, you must keep your records until at least the end of January 2029. Companies may need to keep records longer in some cases, such as assets expected to last more than 6 years, late returns, or an open HMRC compliance check.

What "digital records" means under Making Tax Digital

For VAT

HMRC says all VAT-registered businesses should now be signed up for Making Tax Digital for VAT, keeping digital VAT records and submitting returns through compatible software.

For Income Tax

Sole traders and landlords with qualifying income above the thresholds are joining Making Tax Digital for Income Tax in waves from April 2026. HMRC explains that a digital record is a record of income or an expense created and stored using software that works with Making Tax Digital for Income Tax. Key points from HMRC's guidance:

  • You must still keep the original records or supporting documents (or copies), such as bank statements and invoices.
  • If you use more than one software product, the records must be digitally linked. HMRC gives examples including linked spreadsheet cells, importing files and transferring records by portable device.
  • Once a record has been sent to HMRC in a quarterly update, you must not move it manually, for example by retyping it or copying and pasting it into other software.

A simple digital record system

You do not need anything complicated. Most small businesses can work with something like this.

1. Separate your money

Use a dedicated business bank account. For limited companies GOV.UK says company banking must be separate from personal banking. For sole traders it is not legally required, but it makes records far easier to keep.

2. Use bookkeeping software

Choose bookkeeping software that works with your bank feed and, where relevant, with Making Tax Digital. HMRC publishes lists of compatible software for Making Tax Digital for Income Tax. Check it suits your type of business before you commit.

3. Capture receipts as you go

Photograph or forward receipts when you get them, rather than keeping a shoebox for the year end. Many apps can read the details automatically. Store the image alongside the transaction.

4. Raise invoices from your system

Sending invoices from the same software you use for bookkeeping means your sales records build themselves. If you are VAT-registered, check your invoices include everything HMRC requires.

5. Reconcile regularly

Once a week or month, match bank transactions to receipts and invoices. Little and often is much easier than a marathon session in January.

6. Back everything up

Cloud software usually handles backups for you, but if you keep any files locally, make sure they are backed up somewhere secure. GOV.UK sets out what to do if records are lost, stolen or destroyed, but it is far better not to get there.

7. Protect personal data

Your records will contain customer and supplier details. Keep access limited, use strong passwords and two-step verification, and follow the ICO's guidance on security.

Small habits that make a big difference

  • Write a short note on unusual transactions explaining what they were.
  • Keep mileage logs at the time, not from memory months later.
  • Label receipts with the job or customer if that helps you track profitability.
  • Set calendar reminders for VAT, Making Tax Digital update and filing deadlines.
  • Review your figures monthly so nothing surprises you at year end.

Where we can help

Much of record keeping is repetitive: forwarding receipts, chasing missing paperwork, reminding yourself of deadlines. Our AI automation work focuses on taking those small tasks off your plate using the tools you already have, with you in control. We do not give tax advice, but we can make the admin lighter. Get in touch to talk it through.

Frequently asked questions

Can I keep paper records?

Some records can still be kept on paper, but VAT-registered businesses must keep digital VAT records, and sole traders and landlords in Making Tax Digital for Income Tax must keep digital records of their income and expenses. Many businesses find digital records easier anyway.

Can I just use a spreadsheet?

Spreadsheets can form part of your records, but under Making Tax Digital they must be digitally linked to software that submits to HMRC.

Do I need to keep paper receipts once I have scanned them?

HMRC's Making Tax Digital guidance says you must keep original records or supporting documents, or copies of them. Check HMRC's guidance for your situation before throwing originals away.

How long do I keep records if I close my business?

The same minimum periods generally apply. Check the GOV.UK guidance for your structure.

What happens if I lose my records?

GOV.UK says you must do your best to recreate or estimate figures and tell HMRC. For companies, you should tell your Corporation Tax office straight away.