Record Keeping for the Self-Employed: What HMRC Requires and How Long to Keep It
What records sole traders must keep, how long to retain them, the digital requirements for Making Tax Digital, and the consequences of inadequate record keeping.
Keeping good business records isn't just about filing an accurate tax return — it's a legal requirement. HMRC can open an enquiry into any Self Assessment return up to four years after filing (longer in cases of suspected deliberate error), and if they do, they'll want to see the underlying records. Poor or missing records can result in estimated assessments, penalties, and a very uncomfortable few months.
The good news is that record keeping requirements for sole traders are less burdensome than many people assume. You don't need sophisticated accounting software or complicated spreadsheets. You do need to keep consistent, verifiable records of what came in and what went out.
What records you must keep
Income records:
- All invoices raised (including numbers, dates, client details, amounts)
- Bank statements showing income received
- Records of cash payments received
- Till rolls or sales records if you sell goods or services from a till
Expense records:
- Receipts, invoices, or other documentary evidence for every expense claimed
- Bank and credit card statements
- Mileage log (if claiming vehicle expenses using the AMAP rates)
- Evidence of business purpose for mixed-use items (phone, broadband, home office)
Other records:
- Details of assets purchased for the business (equipment, vehicles)
- Records of grants or SEISS payments received
- CIS deduction statements (if you're a subcontractor in the construction industry)
- Any PAYE records if you also have employment income
You are not required to keep original paper receipts if you have a clear digital copy — HMRC accepts scanned or photographed receipts stored securely. What matters is that the records are legible, accurate, and accessible.
How long to keep records
HMRC sets different retention periods depending on the type of record:
Standard Self Assessment: Keep records for at least 5 years after the 31 January submission deadline for the relevant tax year. For example, records for the 2026/27 tax year (filed by January 2028) must be kept until at least January 2033.
Late returns: If you filed your return late, the retention period extends to 15 months after the date of filing (to cover the enquiry window).
Company records (if you also operate a limited company): Six years from the end of the accounting period.
Employment records (payroll, P60s, P11Ds): Three years after the relevant tax year.
Retaining records beyond the minimum is advisable — particularly where assets (equipment, property) are involved and future Capital Gains Tax calculations may depend on original cost records.
What happens if you lose records
If your records are lost through theft, fire, flood, or IT failure, you should notify HMRC and attempt to reconstruct as much as possible using bank statements, duplicate invoices to clients, and supplier records. HMRC acknowledges that genuine disasters can destroy records, and will generally work with taxpayers who demonstrate a good-faith reconstruction effort.
Penalties for failing to keep adequate records are separate from filing penalties. HMRC can charge a penalty of up to £3,000 for failing to maintain proper records — and this can apply even if the tax return itself is accurate (e.g., if you estimated figures rather than deriving them from records).
Making Tax Digital: digital record requirements
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will require self-employed people and landlords with qualifying income above £50,000 to use compatible software from April 2026, and those with income above £30,000 from April 2027. (Income above £20,000 was previously announced for 2028 but timing is subject to further updates.)
Under MTD for ITSA:
- All income and expense records must be kept digitally in compatible software or apps
- Quarterly updates must be submitted to HMRC (a digital summary of income and expenses for each quarter)
- A final declaration replaces the annual Self Assessment return
For those already using accounting software like FreeAgent, QuickBooks, Xero, or even the HMRC app, MTD compliance is largely automatic. For those still keeping records on paper or in spreadsheets, the move to MTD requires adopting digital tools.
Even if you're below the MTD threshold, adopting digital record keeping now means the transition when it applies to you will be seamless rather than disruptive.
Practical approaches to record keeping
The simplest approach — a dedicated business bank account: Open a separate bank account for all business income and expenditure. Every invoice paid arrives in this account; every business expense is paid from it. Your bank statement becomes a near-complete record of your business activity. This eliminates the need to trawl through personal accounts separating business from personal transactions.
Receipt management: Use a smartphone app (such as Dext, AutoEntry, or even the HMRC app) to photograph receipts the moment you receive them. Store them in a cloud folder organised by month. Don't rely on a box of paper receipts — they fade, get lost, and are difficult to search.
A simple spreadsheet or accounting app: Track income and expenses by category, updated weekly or monthly. This doesn't need to be complex — a table with date, description, category, and amount is sufficient for most sole traders with modest income and expenses.
Mileage: Keep a contemporaneous mileage log. Apps like MileIQ, TripLog, or a simple spreadsheet recording each journey (date, start, destination, purpose, miles) are all acceptable. Don't rely on a rough annual estimate — HMRC expects journey-level evidence.
Self-employed vs limited company record keeping
If you operate as a sole trader, record keeping is relatively simple: track income, track expenses, calculate profit, declare on Self Assessment.
If you operate through a limited company, you have additional requirements:
- Company accounts under accounting standards (FRS 102 Section 1A for small companies)
- Directors' loan account tracking (money the company owes you or you owe the company)
- Board minutes for significant decisions (including dividend declarations)
- VAT records if VAT-registered
Limited company records must be kept for six years by law. HMRC and Companies House may both request them.
The connection between records and expenses
Good record keeping isn't just a compliance exercise — it directly affects how much tax you pay. You cannot claim expenses you can't evidence. A £5,000 annual expenses claim with full receipts reduces your taxable profit (and your tax bill). The same £5,000 claim without evidence is at risk during any HMRC enquiry.
Use the Expenses Checker to identify every expense category relevant to your business, and make sure you're keeping the records to support each one.
Rates updated for 2026/27
All Indietax calculators reflect the rates and thresholds for the 2026/27 tax year (6 April 2026 to 5 April 2027), including the personal allowance freeze, Class 4 NI at 6%, and the £500 dividend allowance.