What Records Do You Really Need to Keep for HMRC (and for How Long)
Whether you are a sole trader, limited company director, or freelancer, keeping accurate financial records is not optional — it’s a legal requirement. HMRC has strict rules about what you must keep, how long you must keep it for, and in what format.
Failing to maintain proper records can result in penalties, higher tax bills, or difficulties if HMRC investigates your business. This article explains the types of records you must keep in the UK, how long to store them, and best practices for staying compliant.
Why Record-Keeping Matters
Good record-keeping is important for several reasons:
It ensures your tax returns are accurate.
It helps you claim all allowable expenses.
It provides evidence if HMRC queries your accounts.
It makes it easier to manage cashflow and business decisions.
Without organised records, you risk overpaying tax, missing deductions, or facing fines.
What Records Do You Need to Keep?
For Sole Traders and Partnerships
Sole traders must keep records that show business income and expenses. This includes:
Sales and income records: invoices issued, till receipts, bank statements.
Business expenses: purchase invoices, receipts, mileage logs, supplier bills.
Personal drawings: money you take out of the business.
VAT records (if registered): VAT invoices, receipts, and VAT returns.
For Limited Companies
Limited companies face more extensive requirements. Records must include:
Company records: directors, shareholders, loans, and issued shares.
Accounting records:
All money received and spent
Details of assets owned
Debts owed or outstanding
Stock at year-end (if applicable)
Bank statements, sales invoices, and purchase invoices
Payroll records: PAYE submissions, employee contracts, payslips.
VAT records (if registered).
Companies must also prepare and keep statutory accounts and Corporation Tax records.
How Long Do You Need to Keep Records?
Sole Traders and Partnerships
You must keep records for at least 5 years after the 31 January submission deadline of the relevant tax year.
Example: For the 2023/24 tax return (deadline 31 January 2025), you must keep records until 31 January 2030.
Limited Companies
You must keep records for at least 6 years from the end of the last company financial year.
In some cases, longer retention is required (e.g., records relating to equipment, property, or if a transaction covers multiple years).
Payroll Records
At least 3 years after the end of the tax year they relate to.
VAT Records
Normally 6 years, though some schemes may require 10 years.
Paper vs Digital Records
HMRC allows records to be kept digitally. In fact, with Making Tax Digital (MTD), digital record-keeping is now mandatory for VAT-registered businesses above the threshold, and will expand to more taxpayers in coming years.
Options include:
Cloud accounting software like Xero, QuickBooks, or FreeAgent.
Scanned or photographed receipts stored securely.
Backups in case of loss, theft, or damage.
Tip: Always ensure digital records are legible and easily accessible if HMRC requests them.
Best Practices for Record-Keeping
Separate business and personal accounts: Avoid confusion by keeping transactions distinct.
Keep records up to date: Reconcile bank accounts and record expenses monthly.
Use accounting software: Automates much of the process and reduces errors.
Organise receipts and invoices: Store them by category or date for easy retrieval.
Back up regularly: Use cloud storage or external drives to protect against data loss.
What Happens if You Don’t Keep Records?
HMRC can:
Estimate your tax bill (often not in your favour).
Charge penalties of up to £3,000 per year for poor or missing records.
Investigate your business in greater detail, leading to stress and potential disruption.
Good records are not just about compliance — they protect you from unnecessary costs and stress.
Proper record-keeping is essential for every UK business, whether you’re a sole trader or limited company.
To recap:
Sole traders must keep income and expense records for at least 5 years.
Limited companies must keep accounting and statutory records for at least 6 years.
VAT and payroll records often have separate rules.
Digital systems make it easier to stay compliant and organised.
By putting efficient systems in place now, you not only stay on the right side of HMRC but also gain clearer insight into your business performance.
If you’re unsure whether your records are up to standard, your accountant can review your processes and recommend improvements.
