What records should a small business keep for HMRC?

At Towerstone Accountants we provide specialist small business accountancy services for owners, directors, and growing businesses across the UK. We created this webpage for small business owners who want clear guidance on managing finances, meeting tax obligations, and making informed decisions without jargon. Our aim is to help you stay compliant, improve cash flow, and build a more resilient business.

Keeping the right records is one of the most important responsibilities a small business owner has, yet it is also one of the areas that causes the most confusion and anxiety. In my experience working with small businesses across the UK, many people worry that they are either not keeping enough information or that they are doing far more than HMRC actually expects. Both situations can cause problems, either through risk of penalties or through unnecessary stress and wasted time.

Good record keeping is not just about satisfying HMRC, it is about protecting yourself, understanding your business properly, and putting yourself in a position where tax returns, accounts, and HMRC correspondence feel manageable rather than overwhelming. When records are poor it often leads to missed deadlines, incorrect tax calculations, lost expense claims, and sometimes formal enquiries. When records are good it creates clarity, confidence, and control.

In this article I will explain exactly what records a small business should keep for HMRC, why those records matter, how long you need to keep them, and how to organise them in a practical way that works in the real world rather than in theory. Everything here is based on UK rules and on what I see daily when dealing with HMRC, not on abstract guidance.

Why HMRC cares about your records

HMRC operates on evidence. When you submit a tax return or company accounts you are confirming that the figures are correct to the best of your knowledge, and that confirmation carries legal responsibility. HMRC does not normally ask to see your records immediately, but it expects you to have them available if requested, sometimes years later.

From my experience there are several reasons record keeping matters so much.

First, accurate records allow you to calculate the correct tax, without evidence you are guessing and guessing almost always leads to mistakes.

Second, records protect you if HMRC raises questions, organised records show that you have acted responsibly and transparently which often makes a significant difference in how an enquiry progresses.

Third, records help you run your business properly, understanding cash flow, profitability, and growth is impossible without reliable information.

Finally, good records reduce stress, deadlines are easier, surprises are fewer, and decisions are based on facts rather than assumptions.

HMRC does not expect perfection, but it does expect consistency, honesty, and evidence.

Who must keep business records

Almost every small business in the UK has a legal duty to keep records, including:

• Sole traders and self employed individuals

• Limited companies

• Partnerships and LLPs

• Landlords with rental income

• Company directors with income outside PAYE

The specific records vary slightly depending on your structure, but the underlying principle is the same, if money comes into or goes out of your business, there must be a record to support it.

Core records every small business must keep

At its simplest HMRC expects you to keep records of income and expenses, but in practice this means several different types of documents working together.

Records of business income

You must keep evidence of all income received by your business, regardless of whether it is paid by bank transfer, card, cash, or online platform. HMRC looks at total income, not just what feels like income to you.

Income records typically include:

• Sales invoices issued to customers

• Till rolls or daily cash summaries if you take cash

• Card machine reports

• Online payment platform statements such as Stripe PayPal or Square

• Marketplace reports from platforms like Amazon Etsy or eBay

• Bank statements showing income received

• Credit notes for refunds or cancelled sales

One of the most common issues I see is missing income records where businesses use multiple platforms. HMRC often cross checks income using bank data and third party information, so gaps tend to be identified quickly.

If you issue invoices they should include your business name and address, a unique invoice number, the invoice date, customer details, a description of what was supplied, and the amount charged including VAT if you are VAT registered.

Digital copies are acceptable as long as they are clear and readable.

Records of business expenses

To claim an expense for tax purposes it must be wholly and exclusively for business use, and you must be able to prove it. HMRC expects evidence, not estimates or memory.

Expense records should include:

• Supplier invoices and receipts

• Bank and credit card statements

• Expense claims

• Loan and finance statements

Where an expense has both business and personal use, such as mobile phones or vehicles, you must keep records that show how the business portion has been calculated.

Bank and cash records

Bank records are a cornerstone of HMRC compliance. Even if you keep excellent invoices and receipts, HMRC will still expect bank records to support them.

You should keep:

• Business bank statements

• Savings account statements used for tax reserves

• Cash books if you handle cash

• Records of cash withdrawals and deposits

For sole traders using a personal bank account, it is especially important to clearly identify which transactions relate to the business. In practice I strongly recommend a separate business account, as it makes record keeping far easier and more defensible.

Payroll and staff records

If you employ staff, even on a small scale, you have additional record keeping responsibilities.

You must keep records of:

• Employee details and contracts

• Payroll reports

• Payslips

• PAYE submissions

• Pension contributions

• Statutory payments such as sick pay or maternity pay

These records must be accurate and retained even after an employee leaves, as HMRC can request them later.

VAT records if you are VAT registered

VAT registered businesses have more detailed record keeping requirements. HMRC expects clear audit trails from sales and purchases through to VAT returns.

VAT records include:

• VAT sales invoices

• VAT purchase invoices

• VAT account showing output and input VAT

• VAT returns and submissions

• Records of adjustments and corrections

Digital record keeping is mandatory under Making Tax Digital for VAT, meaning that compatible software must be used and records must be kept digitally.

Records for limited companies

Limited companies must keep additional statutory records beyond basic income and expenses.

These include:

• Annual accounts

• Corporation Tax calculations

• Confirmation statements

• Share registers

• Director loan account records

• Dividend paperwork

• Board minutes where relevant

These records support both HMRC compliance and Companies House requirements, and they must be kept accurately and securely.

Mileage and vehicle records

If you use a vehicle for business purposes you must keep mileage records to support any claims.

Mileage records should show:

• Date of journey

• Start and end locations

• Purpose of the trip

• Miles travelled

Without this information HMRC may disallow claims entirely.

How long records must be kept

HMRC has strict rules on retention periods.

In most cases you must keep records for:

• At least five years after the 31 January submission deadline for Self Assessment

• At least six years for limited companies

If HMRC opens an enquiry you may need to keep records for longer, so I always advise keeping digital copies wherever possible.

What happens if records are missing or incomplete

Poor record keeping can lead to several problems including:

• Disallowed expenses

• Estimated tax assessments

• Penalties for careless or deliberate errors

• Extended HMRC enquiries

In my experience HMRC is far more understanding where a business has tried to keep records but fallen short than where there is no evidence at all.

Practical tips for organising your records

Good record keeping does not need to be complicated.

I generally recommend:

• Keeping records digitally wherever possible

• Using cloud accounting software

• Uploading receipts regularly rather than saving them up

• Reconciling bank accounts monthly

• Keeping personal and business spending separate

Small consistent habits make a huge difference over time.

Final thoughts

Keeping proper records for HMRC is not about fear or bureaucracy, it is about clarity, confidence, and control. When records are accurate and organised tax returns become simpler, decisions become easier, and HMRC interactions become far less stressful.

From my experience the businesses that struggle most are not the ones that earn the least, but the ones that leave record keeping until it is too late. Starting early and staying consistent is always easier than trying to rebuild history under pressure.

If you treat record keeping as part of running your business rather than a chore to be avoided, it becomes one of the strongest tools you have for protecting both your finances and your peace of mind.

You may also find our guidance on Should I use cloud accounting or spreadsheets and What reports should I review each month with my accountant useful when exploring related small business questions. For a broader range of practical advice, you can visit our small business guidance hub.