Most small business owners dread bookkeeping because they associate it with complexity and accountants. In reality, the core requirement is simple: keep a record of every penny that comes in and goes out of your business. The complexity comes from tax — knowing which expenses are allowable, how to handle VAT, and what HMRC expects when they ask for records.
Direct answer
Bookkeeping is not optional — it is a legal requirement. But it does not need to be complicated. This guide explains exactly what records you must keep, for how long, and how to do it without spending hours every week. Use the key facts, step list and official source links on this page to confirm the decision before you spend money or register anything.
- Sole trader records
- 5 years after 31 Jan deadline
- Limited company records
- 6 years from year end
- MTD for Income Tax
- From April 2026 (£50k+)
- ICO data fee
- £40–£60/year (most businesses)
Checklist
Quick checklist
- Open a dedicated business bank account
- Choose a bookkeeping system (spreadsheet or software)
- Set up a folder (physical or digital) for all receipts
- Log every sale and purchase as it happens
- Reconcile your bank statement monthly
- Set aside 25–30% of profit for tax
- Check whether MTD for Income Tax applies to you
- Set calendar reminders for tax deadlines
Section 01
What records you are legally required to keep
HMRC requires all self-employed people and limited companies to keep records of their income and expenses. The specific requirements differ slightly between sole traders and limited companies.
- All sales invoices and receipts — every sale you make.
- All purchase invoices and receipts — every cost you incur.
- Bank statements — all business bank accounts.
- PAYE records — if you have employees (payslips, P60s, RTI submissions).
- VAT records — if you are VAT-registered (VAT returns, invoices, import/export records).
- Limited companies additionally: board minutes, shareholder register, statutory accounts, confirmation statements.
- Cash transactions must be recorded even if no receipt exists — create one.
Section 02
How long to keep records
The retention period depends on your business structure and the type of record.
- Sole trader / partnership: keep records for at least 5 years after the 31 January Self Assessment deadline for the relevant tax year. For the 2024/25 tax year (deadline 31 January 2026), keep records until at least 31 January 2031.
- Limited company: keep accounting records for at least 6 years from the end of the financial year they relate to. Some records (e.g. those relating to a transaction spanning multiple years) must be kept longer.
- VAT records: keep for at least 6 years.
- PAYE records: keep for at least 3 years after the end of the tax year they relate to.
- Contracts and legal documents: keep for at least 6 years after the contract ends (the limitation period for most contract claims).
- HMRC can investigate up to 4 years back for innocent errors, 6 years for careless errors, and 20 years for deliberate fraud.
Section 03
Allowable expenses — what you can deduct
An allowable expense is a cost that is incurred wholly and exclusively for the purposes of your business. You can deduct allowable expenses from your income before calculating your tax bill.
- Office costs: stationery, postage, printer ink, computer equipment (may need to be capitalised if over a certain value).
- Travel: business mileage (45p/mile for the first 10,000 miles, 25p/mile thereafter), train and bus fares for business trips. Not commuting.
- Clothing: only uniforms or protective clothing. Not regular clothing, even if worn for work.
- Staff costs: salaries, employer NI, pension contributions, staff training.
- Financial costs: bank charges, interest on business loans, accounting fees, insurance.
- Marketing: website costs, advertising, business cards, trade show fees.
- Professional subscriptions: trade body memberships, professional journals.
- Home office: if you work from home, you can claim a proportion of home costs (heating, electricity, broadband) or use HMRC's simplified flat rate (£10–£26/month depending on hours).
- Not allowable: client entertainment, fines and penalties, personal expenses, depreciation (capital allowances apply instead).
Section 04
Choosing a bookkeeping system
You have three main options: spreadsheets, dedicated accounting software, or an accountant. The right choice depends on your complexity and budget.
- Spreadsheets: free and sufficient for very simple businesses with few transactions. HMRC accepts spreadsheets for Making Tax Digital if you use bridging software.
- Accounting software: FreeAgent, Xero, QuickBooks, and Sage are the most popular UK options. Prices start from around £12–£30/month. All support Making Tax Digital. FreeAgent is free with some Tide and NatWest business accounts.
- Accountant: worth the cost if your affairs are complex, you have employees, or you are VAT-registered. Typical fees: £500–£2,000/year for a sole trader, £1,500–£5,000/year for a small limited company.
- Making Tax Digital (MTD): from April 2026, sole traders and landlords with income over £50,000 must keep digital records and submit quarterly updates to HMRC. From April 2027, the threshold drops to £30,000.
Section 05
A simple bookkeeping routine
The most common bookkeeping mistake is letting records pile up. A simple weekly routine takes 15–30 minutes and prevents the year-end panic.
- Weekly: log all sales invoices raised and payments received. Log all purchase receipts. Reconcile against your bank statement.
- Monthly: check your bank statement against your records. Chase any unpaid invoices. Review your profit and loss for the month.
- Quarterly: if VAT-registered, prepare and submit your VAT return. Review your tax position and set aside money for your tax bill.
- Annually: prepare your Self Assessment tax return (sole traders) or statutory accounts and Corporation Tax return (limited companies). Send to HMRC by the deadline.
Partner offers
Before you go — claim your reader offers
Two offers we recommend to every UK founder. Codes are exclusive to readers of this guide.
Business bank account
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REFER200Business credit card
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SETTINGUP18+, UK residents only. Offers are subject to each provider's terms. Tide: £75 paid after completing £100 of card transactions within 30 days of opening, plus a further £125 paid after depositing £5,000 within 7 days (total £200, code REFER200). Capital on Tap: 7,500 points (≈ £75) after first card transaction within 30 days; credit subject to status. We may receive a commission if you sign up — it doesn't change the offer to you.
Common questions