Keeping records: what HMRC actually wants

Record keeping is the most boring subject in this entire trade and the one that costs people the most money. Not through penalties — through under-claimed expenses, an accountant's bill inflated by having to sort out a carrier bag, and the tax you overpay because you genuinely can't prove what you spent.

Here's what you actually have to keep, for how long, and a routine that takes an hour a month. Retention periods and digital requirements change — confirm the current rules on gov.uk, especially around Making Tax Digital.

What "records" means

For a self-employed trade, your records are the evidence behind the numbers on your tax return. Broadly:

Income

• All sales and takings — invoices you issued, cash jobs, card payments
• Bank statements showing money in
• CIS payment and deduction statements from contractors
• Any other business income

Expenses

• Receipts and invoices for everything you bought
• Merchant statements and account invoices
• Van and fuel records, or a mileage log
• Subcontractor payments (and, if you're a contractor under CIS, the deductions you made)
• Insurance, scheme fees, accountant, phone, software

The rest

• Bank statements for the business account
• VAT records if you're registered
• Payroll records if you employ anyone
• Records of assets — the van, big tools — with purchase dates and prices
• Anything supporting a personal/business apportionment (how you arrived at your phone percentage)

The principle underneath all of it: you must be able to show how you got to the figure you put on the return. Not "roughly £4,000 of tools" — the actual receipts.

Cash jobs are still income

Worth stating plainly because it costs people badly. Cash is income. It goes in the records, it goes on the return, and it's taxed the same as anything else. HMRC has a lot of ways of noticing money that doesn't match a lifestyle, and the penalties for deliberately understating income are in a different league to the penalties for being disorganised.

There's nothing wrong with being paid in cash. There's a great deal wrong with not recording it.

How long to keep it

This is one of the most commonly misremembered figures in self-employment. Broadly:

Business type	Typical minimum retention
Self-employed / sole trader	At least 5 years after the 31 January submission deadline of the relevant tax year
Limited company	At least 6 years from the end of the accounting period
VAT records	A separate, specified period (commonly 6 years)
Payroll records	Its own period, check current rules

Check the current figures — these are the ones to verify, not assume. Longer if a return is late, if it's under enquiry, or if the records cover an asset you still own. When in doubt, keep it: digital storage costs nothing and destroying records you needed is unfixable.

The setup that makes it easy

Four things, and you only do them once.

1. A separate business bank account. Not a legal requirement for a sole trader, but the single biggest improvement available. Everything business goes in and out of one account, so your bank statement is most of your bookkeeping. Trying to separate business from personal in one account, twelve months later, is where accountants' fees come from.

2. A card for business spending. Same principle. Everything in one place, nothing to reconstruct.

3. Somewhere for receipts, on your phone. Photograph every receipt the moment it's in your hand — at the merchant counter, in the van, at the till. Thermal paper genuinely fades to a blank strip within months, and a faded receipt is not a record. An app that scans and files them is worth the small subscription; a dedicated photo album is free and works.

4. One system, not five. Whatever you pick — proper accounting software, a spreadsheet, or an app — pick one and put everything in it. The people who struggle aren't the ones with a bad system, they're the ones with four half-used ones.

The monthly hour

Set a repeating reminder. Last Friday of the month, an hour:

1. Reconcile the bank — every payment in matched to an invoice, every payment out categorised
2. Chase what's unpaid — the list falls out of step 1 for free. See chasing late invoices.
3. File the month's receipts — anything not yet captured
4. Update the mileage log, if you're claiming actual mileage
5. Move the tax money if you haven't been doing it per-payment — see how much to set aside for tax
6. Note the month's profit. Roughly. Knowing whether you're up or down while you can still do something about it is the actual point of bookkeeping — the tax return is a by-product.

An hour a month is twelve hours a year. Doing it all in January is a full weekend, done badly, at the worst possible time, on a deadline.

Making Tax Digital

VAT-registered businesses already have to keep digital records and file through compatible software. Making Tax Digital for Income Tax is being phased in for self-employed people and landlords above certain income thresholds, bringing quarterly digital updates instead of one annual return.

Whether it applies to you, and from when, depends on your income level and the current timetable — which has changed more than once, so check the position for your own income band rather than relying on anything you read a year ago.

The practical implication either way: if you're still on paper, moving to digital records now is time well spent, because you'll almost certainly have to eventually.

Keep the job paperwork too

Tax records are one thing. The paperwork that protects you in a dispute is another, and it's often forgotten:

• Quotes and what the customer agreed to — the scope, exclusions and terms they accepted
• Variations — every "can you just also..." in writing, priced, agreed
• Certificates and notifications — electrical certificates, Gas Safe notifications, building control paperwork
• Photos of the work, dated, especially of anything you found and anything you covered up
• The message thread with the customer
• Delivery notes for materials

If a job ever goes to a dispute or a claim — see what to do when a customer won't pay — this is what decides it. Keep it for at least as long as your liability could run, which for building work can be a long time.

If it's already a mess

Common, and fixable. Don't try to do four years at once:

1. Open the separate account today. Draw a line — everything from here is clean.
2. Start photographing receipts today. Right now, forwards only.
3. Then work backwards from the most recent tax year, a month at a time, using bank statements as the spine. Statements you can always get from the bank; receipts you can't always get back.
4. Get an accountant involved early if a return is late or wrong. Correcting it voluntarily is treated very differently from being found out.
5. If income has genuinely gone unreported, take proper advice on disclosing it. Coming forward voluntarily is always the better end of that conversation.

The honest summary

Separate account, photograph every receipt the day you get it, one hour a month, keep it all for longer than you think you need to. That's the whole discipline. It costs you twelve hours a year and it buys you a lower tax bill, a cheaper accountant, a January that isn't a crisis, and the paperwork to win an argument if one ever comes.

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