How to Keep Business Records for HMRC: The Complete Requirements

Every person who files a tax return in the UK has a legal obligation to keep adequate records. For self-employed people and landlords, this means keeping detailed records of all income and expenses. For limited company directors, the requirements are even more extensive. Failing to keep proper records is not just poor practice — it is a legal offence that can result in penalties of up to £3,000.

This guide covers exactly what HMRC requires you to keep, how long to keep it, whether digital records are acceptable, and what happens when things go wrong.

Why Record Keeping Matters

HMRC's record-keeping requirements exist for two reasons. First, they enable you to file an accurate tax return. If you do not know what you earned and spent, you cannot calculate the correct tax. Second, they allow HMRC to check your return if they open an enquiry. If you cannot support the figures on your return with underlying records, HMRC can estimate your tax liability — and their estimate will almost certainly be higher than the true figure.

Beyond HMRC compliance, good records help you understand how your business is performing, spot trends, manage cash flow, and make informed decisions.

What Records You Must Keep

Self-Employed Sole Traders

If you are self-employed, HMRC requires you to keep records of:

All income received, including:

• Sales invoices issued to clients or customers
• Bank statements showing income received
• Cash receipts and till rolls if you take cash payments
• Records of any other income, such as bank interest or rental income

All expenses incurred, including:

• Purchase invoices and receipts for goods and services
• Bank and credit card statements
• Petty cash records
• Mileage logs if you claim vehicle expenses
• Records of any assets bought or sold

Other records, including:

• Your annual accounts or the summary figures used to complete your tax return
• Records of personal money you introduced to or withdrew from the business
• VAT records if you are VAT registered (see below)

The level of detail depends on your turnover. If your annual turnover is below £150,000 and you use cash basis accounting, you can keep simpler records that just show your total income and expenses. But even under cash basis, you still need to keep the underlying evidence — receipts, invoices, and bank statements.

Landlords

Property landlords must keep records of:

• Rental income received from each property
• Tenancy agreements
• Letting agent statements
• Mortgage statements showing interest paid
• Receipts for repairs, maintenance, and other expenses
• Records of any furniture or equipment bought for the property
• Insurance policy documents and premium receipts

Limited Companies

Limited companies have more extensive requirements under the Companies Act 2006 and tax legislation. You must keep:

• Records of all money received and spent, and the reasons for it
• A record of all assets and liabilities
• Stock records (if relevant)
• All goods bought and sold, with details of buyers and sellers (except for retail sales)
• Annual accounts filed at Companies House
• Corporation Tax computations
• Dividend vouchers
• Payroll records if you have employees
• Board minutes and resolutions

VAT Records

If you are VAT registered, you must also keep:

• A VAT account summarising the VAT charged and the VAT you can reclaim
• Copies of all VAT invoices issued and received
• Records of any adjustments or corrections
• Import and export records
• Records of goods used for personal purposes or given away

Under Making Tax Digital for VAT, these records must be kept digitally using compatible software.

How Long to Keep Records

The retention periods depend on your business type:

Self-Employed and Landlords

You must keep your records for at least five years after the 31 January filing deadline for the relevant tax year. For example:

| Tax year | Filing deadline | Keep records until | |----------|-----------------|-------------------| | 2024/25 | 31 January 2026 | 31 January 2031 | | 2025/26 | 31 January 2027 | 31 January 2032 |

If you file your return late, the five-year clock starts from the actual date you filed, not the original deadline.

Limited Companies

Companies must keep records for six years from the end of the accounting period they relate to. If the records relate to a transaction that spans more than one accounting period, keep them for six years from the end of the last period covered.

VAT Records

VAT records must be kept for six years, though HMRC may accept a shorter period if you can show it is not practical to keep them longer — for example, if storage is a genuine problem.

What If HMRC Opens an Enquiry?

If HMRC has opened an enquiry into your return, keep all relevant records until the enquiry is formally closed, even if this is longer than the normal retention period.

Digital vs Paper Records

HMRC accepts both digital and paper records. However, the direction of travel is firmly towards digital. Making Tax Digital already requires VAT-registered businesses to keep digital records using compatible software, and this requirement is extending to Income Tax Self Assessment for those with qualifying income above £50,000 from April 2026.

Even if you are not yet legally required to keep digital records, there are strong practical reasons to do so:

• Digital records are easier to search and organise.
• They cannot be lost in a flood, fire, or house move.
• They can be backed up automatically.
• They make tax return preparation far quicker.
• Accounting software can categorise transactions and flag errors.

If you do keep paper records, HMRC recommends storing them securely, taking backups (for example, photocopying key documents), and organising them by tax year.

What Happens If Your Records Are Inadequate

HMRC Penalties

Failure to keep adequate records is a legal offence under Section 12B of the Taxes Management Act 1970 for Self Assessment and the Companies Act 2006 for limited companies. HMRC can impose a penalty of up to £3,000 for each failure.

In practice, HMRC tends to be more lenient with first-time offenders who make a genuine effort to improve, but they are less forgiving when inadequate records have led to an incorrect tax return.

Estimated Assessments

If HMRC cannot verify the figures on your return because your records are missing or incomplete, they can issue an estimated assessment. This means they calculate what they believe your tax should be based on their own analysis — and you then have to prove they are wrong if you disagree.

Estimated assessments are often significantly higher than the true figure, because HMRC will err on the side of caution (from their perspective, not yours).

Impact on Enquiries

Poor records make HMRC enquiries longer, more stressful, and more expensive. If HMRC finds that your records are inadequate, they may widen the scope of the enquiry to cover additional years. What might have been a simple check can turn into a multi-year investigation.

Practical Tips for Good Record Keeping

Record Transactions Promptly

Do not let receipts pile up. Record income and expenses as soon as they occur. The longer you leave it, the harder it becomes to remember what a transaction was for.

Separate Business and Personal Finances

Use a dedicated business bank account. This makes it far easier to identify business transactions and keeps your records clean. Mixing business and personal spending in a single account is one of the most common causes of poor record keeping.

Keep Digital Copies of Paper Receipts

Paper receipts fade, get lost, and take up space. Photograph or scan them and store the digital copies alongside your accounting records. HMRC accepts digital copies as evidence, provided they are legible and complete.

Reconcile Regularly

Check your records against your bank statements at least monthly. This catches errors, identifies missing transactions, and ensures your records are always up to date.

How Accounted Keeps Your Records Automatically

This is where Accounted transforms the experience. Penny, the AI bookkeeper, connects to your bank account and automatically imports every transaction. Each one is categorised, matched to any relevant invoices or receipts, and stored digitally in the format HMRC expects.

You do not have to remember to record anything. You do not have to worry about retention periods — Accounted keeps everything for as long as you need it. And when HMRC asks for records, everything is already organised and ready.

Penny also flags unusual transactions, prompts you for missing information (like the purpose of an expense), and keeps a running audit trail that satisfies even the most thorough HMRC enquiry.

Start your free trial of Accounted today and let Penny handle your record keeping — so you are always compliant, always organised, and never caught out by an HMRC enquiry.

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