Sophie Clarke
Why HMRC expects you to keep records
Filing your tax return is the easy part. The harder, quieter work happens across the year, when you decide whether to keep that coffee receipt, that train ticket, that scrappy note about a customer paying in cash. HMRC does not ask you to prove every figure on the day you file, but it does reserve the right to check later. If it does, your records are what stand between a straightforward query and an unwelcome bill.
Good records do more than satisfy the tax office. They show you what your business actually earns, which customers pay late, and where your money goes. Most small business owners who keep tidy books say the same thing: it makes pricing, planning and cash flow far less stressful.
The paperwork that covers most small businesses
You do not need an accountant's archive. You need a clear trail from your income and expenses to the numbers on your return. For most sole traders, partnerships and small limited companies, that means keeping:
- Sales invoices and receipts — every invoice you issue, plus till rolls, card slips or banked cash records showing money coming in.
- Purchase invoices and receipts — supplier bills, subcontractor invoices, and receipts for anything you claim as a business expense.
- Bank and credit card statements — for every business account, including personal accounts used for business transactions.
- Petty cash records — a simple log of small cash payments and who they went to.
- Payroll records — payslips, PAYE submissions, pension contributions and details of any benefits you provide.
- VAT records — if you are registered, keep your VAT invoices, returns and the calculations behind them.
- Loan and finance agreements — hire purchase, leases and business loans, plus statements showing interest and capital repaid.
- Year-end documents — stocktake figures, asset purchase details, and your accountant's workings.
Mileage and vehicle records: the detail that trips people up
Mileage claims are one of the most common places where a return falls apart under scrutiny. HMRC wants more than an annual total. It wants to see how you arrived at it. Keep a log that shows the date of each journey, the start and finish points, the business purpose, and the miles covered. A notebook in the glovebox or a phone app both work; what matters is that you record trips as they happen rather than reconstructing them in January.
If you use simplified mileage rates, your log is your evidence. If you claim actual running costs instead, keep fuel receipts, servicing invoices, insurance, road tax and MOT paperwork alongside a record of your business mileage versus total mileage. Mixing the two methods halfway through the year tends to create problems, so decide early and stay consistent.
Digital records and Making Tax Digital
Most VAT-registered businesses already keep digital records and file through compatible software. Making Tax Digital for Income Tax is being phased in, so even if you are not affected yet, moving to digital bookkeeping now saves a scramble later. Photograph receipts as you receive them, forward supplier invoices to a dedicated email address, and reconcile your bank feed monthly rather than annually.
Digital does not mean paperless perfection. Keep the original documents for anything you scan, at least until the retention period ends, and make sure your backups actually work. A cloud folder you have never tested is not a record-keeping system.
How long to keep everything
The general rule is at least five years after the 31 January filing deadline for the relevant tax year. For a return covering the 2024/25 tax year, filed by 31 January 2026, that means keeping records until at least 31 January 2031.
Some records need longer. Keep paperwork relating to assets you still own, such as property or equipment, until five years after the year you dispose of them. Limited companies should keep accounting records for six years from the end of the financial year, and longer if the company has been investigated or has outstanding tax matters. If you are unsure, err on the side of keeping things a while longer.
Building a system you will actually follow
A shoebox works until it doesn't. Set aside one place, physical or digital, for everything, and sort it at least monthly. Label folders by tax year and category, keep a simple mileage log, and store bank statements as they arrive rather than requesting duplicates later.
If record-keeping is the part of running your business you dread most, that is a fair sign to bring in help. An accountant can set up the structure, check your categories and take the filing off your plate — but the raw records still need to come from you, in reasonable shape and on time. Treat it as a weekly twenty-minute habit rather than an annual ordeal, and your tax return becomes a formality instead of a source of dread.
