What records should a small business keep for HMRC?

Keeping accurate financial records is one of the most important responsibilities for any small business. HMRC requires businesses to maintain clear, detailed records of income, expenses, and taxes to ensure transparency and compliance. Good record keeping not only helps you avoid penalties but also makes it easier to complete tax returns, claim expenses, and manage cash flow effectively. This article explains what records small businesses should keep for HMRC, how long to keep them, and how accountants can help you stay organised.

HMRC requires every business, regardless of size, to keep accurate and up-to-date records. These records provide evidence of your income, expenses, and tax calculations. They are used to verify that you are paying the correct amount of tax and claiming only legitimate deductions.

Failing to keep proper records can result in fines, extra tax charges, or delays if HMRC reviews your accounts.

Why keeping business records matters

Accurate records help you in several ways:

  • Completing Self Assessment or Corporation Tax returns correctly.

  • Supporting expense claims and VAT returns.

  • Managing cash flow and business performance.

  • Avoiding HMRC penalties for missing or inaccurate information.

  • Providing financial evidence for loans or investment applications.

Even if your business is small or newly established, maintaining good records from the start will save time and stress later.

What HMRC expects small businesses to record

The records you must keep depend on your business structure and whether you are a sole trader, partnership, or limited company. However, most small businesses need to maintain the following key records.

1. Income and sales records

Keep detailed records of all income your business receives, including:

  • Sales invoices, receipts, or till records.

  • Bank statements and credit card transactions.

  • Online payment confirmations (such as PayPal or Stripe).

  • Details of other income such as rent, interest, or commissions.

If you sell goods or services online, you must also keep copies of sales summaries from ecommerce platforms like Amazon, eBay, or Shopify.

2. Expense and purchase records

You should keep proof of all business expenses to support tax deductions. This includes:

  • Supplier invoices and receipts.

  • Purchase orders and delivery notes.

  • Business travel and mileage records.

  • Utility bills for business premises.

  • Rent, insurance, and professional fees.

If you work from home, retain records of household bills that are partly used for business purposes, such as electricity, internet, or phone usage.

3. Payroll and employee records

If you employ staff, HMRC requires you to keep full payroll records for at least three years. These must include:

  • Employee names, addresses, and National Insurance numbers.

  • Wages, bonuses, and deductions.

  • PAYE and pension contributions.

  • Sick pay, maternity pay, and other statutory payments.

Payroll records must match your submissions to HMRC under the Real Time Information (RTI) system.

4. VAT records (if registered)

VAT registered businesses must keep additional records for at least six years. These include:

  • VAT invoices issued and received.

  • VAT account showing total input and output tax.

  • VAT return submissions.

  • Details of VAT adjustments and partial exemption calculations.

Under Making Tax Digital (MTD) rules, VAT records must be kept digitally using HMRC compatible accounting software such as Xero, QuickBooks, or Sage.

5. Bank and loan information

Maintain copies of all business bank and credit card statements. These help reconcile your accounts and provide proof of income and expenditure.

If you have business loans or financing, keep the loan agreements, repayment schedules, and correspondence with lenders.

6. Asset and depreciation records

Keep details of any assets your business owns, such as vehicles, computers, or machinery. These records should show:

  • Purchase price and date.

  • Depreciation calculations.

  • Sale or disposal value (if sold).

This information is needed to claim capital allowances and calculate accurate profits.

7. Stock and inventory records

If you hold stock, you must keep a record of:

  • Opening and closing stock values for each accounting period.

  • Stock purchases and sales.

  • Wastage or stock write-offs.

Accurate stock records ensure that your accounts and tax returns reflect your true trading position.

8. Business correspondence and contracts

Keep copies of contracts, leases, agreements, and correspondence with clients, suppliers, and HMRC. These documents provide evidence of business activities and can be useful during disputes or audits.

How long to keep business records

HMRC requires small businesses to keep records for a minimum of five years after the 31 January submission deadline of the relevant tax year.

For example, if you submit your 2023–24 Self Assessment by 31 January 2025, you must keep your records until at least 31 January 2030.

Limited companies must keep their records for at least six years from the end of the accounting period they relate to. Some records, such as property or share transactions, may need to be kept longer.

Keeping records longer than the minimum period is advisable, especially if your business has ongoing contracts or loans.

Paper or digital records: what HMRC allows

You can keep your business records in either paper or digital format. Many businesses now use accounting software or apps to store records electronically. HMRC accepts digital copies as long as they are accurate, complete, and legible.

Benefits of using digital systems include:

  • Automatic backups and cloud storage.

  • Easier searching and retrieval of documents.

  • Integration with bank feeds and invoicing.

  • Simplified VAT and tax return submissions.

If you use paper records, ensure they are stored securely and organised by category, such as sales, purchases, or expenses.

Penalties for poor record keeping

HMRC can fine businesses that fail to keep adequate records or cannot produce them during an inspection. Penalties can range from £250 to £3,000 depending on the severity of the breach.

Inaccurate or missing records can also lead to incorrect tax calculations, which may trigger additional tax assessments or interest charges.

Maintaining proper records is therefore both a legal and financial safeguard.

How accountants help small businesses with record keeping

Accountants play a key role in helping small businesses stay compliant with HMRC requirements. They can:

  • Set up efficient bookkeeping systems.

  • Recommend accounting software compatible with Making Tax Digital.

  • Reconcile bank statements and manage cash flow.

  • Prepare VAT, payroll, and tax returns.

  • Ensure records meet HMRC’s retention standards.

With an accountant’s support, you can focus on running your business while ensuring your financial records remain accurate and up to date.

Example in practice

A small marketing agency using spreadsheets struggled to keep accurate expense records and often misplaced receipts. After hiring an accountant, the agency switched to cloud accounting software that automatically synced bank transactions and stored digital copies of receipts. The accountant ensured all records met HMRC standards and completed the VAT return directly from the system, saving time and preventing errors.

Conclusion

HMRC requires small businesses to keep detailed records of all income, expenses, assets, and tax submissions. Whether you store them digitally or on paper, keeping accurate records is essential for compliance, tax efficiency, and financial control.

By working with an accountant and using modern accounting tools, you can ensure your records are organised, secure, and ready for any HMRC review, allowing you to run your business with confidence and peace of mind.