Do sole traders need to keep signed contracts for HMRC?

Do sole traders need to keep signed contracts for HMRC?

If you’re a sole trader in the UK, you’ll hear the same advice from every sensible bookkeeper: “Keep your records.” But what counts as a “record” when it comes to contracts? Do you need signed copies? Do emails count? What if you never had a formal written agreement at all? And, most importantly, what would HMRC actually expect you to show if they ask questions about income, expenses, or whether a cost was genuinely “for the business”?

The short version is this: HMRC does not generally require sole traders to keep signed contracts in every situation, but HMRC does require you to keep sufficient records to support what you put on your tax return. Signed contracts can be a strong form of evidence, but they’re just one type of evidence. For many small businesses, practical alternatives like purchase orders, invoices, emails, bank statements, and work logs can do the job. Still, there are cases where a contract—signed or otherwise—can be particularly important, and it can save you a lot of hassle if you can produce it quickly.

This article explains what HMRC is looking for, when signed contracts matter, how long to keep them, what to do if you don’t have them, and a sensible way to organise everything so you can sleep at night.

What HMRC actually cares about: evidence for your tax position

When people say “HMRC wants contracts,” what they usually mean is “HMRC wants proof.” HMRC’s main focus is whether your tax return is correct. For a sole trader, that typically involves:

- Proving your business income is complete and accurate (you’ve declared what you earned).

- Proving your business expenses are allowable and correctly claimed (you’ve not claimed personal costs as business expenses, or claimed more than you should).

- Being able to explain unusual items (large one-off costs, sudden changes in profit, refunds, deposits, or irregular payments).

A signed contract can help prove things like what was agreed, what the scope of work was, when income is due, whether a payment is a deposit or a fee, and who is responsible for costs. But if you can prove those points in other ways, you may not strictly need a signed contract for HMRC purposes.

Record keeping is broader than “contracts”

For most sole traders, the records HMRC expects revolve around everyday business paperwork and digital trails. Examples include:

- Sales invoices and receipts issued to customers

- Purchase invoices and receipts from suppliers

- Bank statements and payment processor statements (e.g., card payments)

- Mileage logs and travel evidence (where relevant)

- Notes explaining business purpose for mixed-use items

- Payroll records if you employ staff

- VAT records if you are VAT-registered

Contracts sit alongside these documents. They’re not always the primary evidence; sometimes the invoice and bank statement are more persuasive because they show what actually happened. A contract is often strongest when there’s a dispute, ambiguity, or a complex arrangement that isn’t obvious from the numbers alone.

So, do you need signed contracts as a sole trader?

In many everyday situations, no—there is no universal rule that says a sole trader must keep signed contracts to satisfy HMRC. However, you should think in terms of “What would prove this if someone questioned it?” If a signed contract is the cleanest proof, keep it. If you don’t have one, build a file of alternative proof.

Here are some typical scenarios:

1) You provide standard services and invoice after completion

If you’re a designer, tradesperson, consultant, cleaner, photographer, or similar, your evidence might be:

- A quote or proposal

- Email acceptance from the client

- Invoices you issued

- Proof of payment

- Work product or completion confirmation

HMRC would usually be satisfied if your records clearly show the income and relate to the business. A formal signed contract is helpful but often not essential.

2) You do ongoing work with a retainer or subscription

Retainers can raise questions such as: is the payment for a specific deliverable, for availability, or for a period of time? Your contract or written terms can clarify this. If the arrangement is significant or long-term, keeping the signed contract or at least the agreed terms is wise. Even if not signed, a dated document plus evidence that both parties acted on it can be valuable.

3) You take deposits, stage payments, or advance payments

Deposits can be confusing from an accounting and tax perspective. Are they refundable? Are they part-payment? When do you recognise income? A contract or written terms can help establish the nature of the deposit. If you routinely take deposits, keeping your standard terms and proof the customer agreed to them is strongly recommended.

4) You pay subcontractors or hire freelancers

If you use subcontractors, you’ll want proof of what they did and why the cost is a business expense. Invoices, payment evidence, and emails may suffice. But if the relationship is regular or involves higher amounts, a written agreement is useful—not only for HMRC, but also for managing expectations and avoiding misunderstandings.

5) You have complex, high-value, or unusual transactions

If a transaction is large or unusual for your business—buying specialist equipment, paying for a long-term licence, entering a revenue-share arrangement—keeping the agreement is very sensible. If HMRC asks why a cost is allowable, a contract can quickly explain it.

What counts as a “signed contract” anyway?

Many sole traders imagine a printed document signed in ink. In reality, “signed” can mean different things depending on context. For practical HMRC purposes, what matters is whether you can show an agreement existed and what it said.

Common forms of “signed” or “agreed” contracts include:

- Wet-ink signatures on paper

- Electronic signatures (e.g., signed PDFs)

- Click-to-accept terms (online agreements, platform terms)

- Email confirmation that explicitly accepts a quote or terms

- A purchase order referencing your terms

If you have a signed PDF, that’s great. If you don’t, an email chain where the client says “Yes, I accept the quote and your terms” plus the attached quote/terms can be nearly as strong. If the agreement is on a platform (for example, you sell services through a marketplace), a copy of the platform terms and transaction record can also support your position.

HMRC enquiries and what they might ask to see

Most sole traders will never face a full-blown enquiry, but HMRC can ask questions if something looks unusual. If HMRC queries your return, they often start with basics: bank statements, invoices, receipts, and explanations for specific items.

Signed contracts can become relevant in a few common situations:

Allowable expenses questioned

If you claim an expense that seems partly personal, HMRC may ask why it is wholly and exclusively for business. A contract showing the expense was required for a job can help, but so can emails, a project brief, or client requirements.

Timing of income

If the timing of income recognition matters (for example, you received money in one period for work performed later), HMRC could ask why income appears in one year rather than another. Terms about deposits, refunds, and milestones may matter.

Bad debts, refunds, and cancellations

If you write off an invoice as a bad debt, or you refund a client, HMRC may want to understand what happened. A contract or terms about cancellation, refunds, and dispute resolution can help prove the business rationale.

Large one-off costs

If you pay a big amount to a supplier, a contract can explain what you bought and whether it is revenue or capital in nature (this affects how it is treated in accounts and tax).

Status and engagement questions

Although employment status issues are often discussed in other contexts, a sole trader may still face questions about the nature of working arrangements. Written agreements can help describe the relationship, though the reality of working practices matters too.

How long should a sole trader keep contracts and supporting records?

It’s sensible to keep contracts for at least as long as you keep the rest of your tax records. As a practical approach, many sole traders keep records for multiple years beyond the relevant tax year because questions can arise later and because disputes with clients can happen after completion.

A good rule of thumb is: keep business records (including contracts) for a minimum period that covers HMRC’s ability to check your return, plus a buffer. If you’re not sure, keeping records for around six years is a common, cautious practice for small businesses. Some records may be worth keeping longer if they relate to long-term obligations, warranties, intellectual property rights, licences, or ongoing liabilities.

Also think beyond HMRC: contracts are valuable for your own protection. If a client challenges an invoice two years later, or you need to prove what was agreed, you’ll be glad you kept the paperwork.

What if you don’t have a signed contract?

Lots of sole traders operate without formal contracts, especially in early stages or in local service work. If you don’t have signed contracts, your goal is to build an evidence trail showing:

- Who the customer/supplier was

- What was agreed (scope, price, key terms)

- When it happened

- That the work was done or the goods/services were supplied

- That payment was made (or due)

Here are practical substitutes that can collectively be very strong:

Email and message threads

An email chain agreeing a price and scope, or messages confirming dates and deliverables, can be persuasive. Take care to keep the full thread, not just a screenshot of one line.

Quotes and proposals

Keep the quote you sent and evidence it was accepted. If you use a quoting tool, keep the acceptance record.

Invoices and receipts

Your invoices show what you charged for. Supplier invoices show what you bought. Make sure they are clear and contain business-relevant descriptions.

Bank and payment processor records

These prove money movement. Pair them with invoices so the story is clear.

Work evidence

Timesheets, job sheets, project files, delivery notes, sign-off emails, photographs of completed work, or version histories can show the work happened.

Terms and conditions you normally use

If you have standard terms, keep a versioned copy (with dates) so you can show what terms applied at the time. If you send them routinely with quotes or invoices, keep an example email attaching them.

Contracts that are “agreed” but not signed

Sometimes you will have a written contract, but it was never signed—maybe the client said “Looks good” and then the project started. If both parties acted as if the contract applied, it can still have evidential value. For HMRC, the question is less about the legal technicalities of contract formation and more about whether the document credibly reflects the commercial arrangement.

To strengthen your file when a contract is not signed:

- Keep the final version you sent

- Keep the email where the client accepts or says to proceed

- Keep any purchase order referencing the agreement

- Keep evidence of performance and payment consistent with the terms

Even a simple “Proceed as per your proposal” can be useful when paired with the proposal itself.

Digital record keeping: can you store contracts electronically?

Yes—digital storage is normal and often better than paper. For HMRC purposes, what matters is that records are accurate, complete, readable, and can be produced if requested. A scanned contract, signed PDF, or a digital signature record is typically fine.

To make your digital records robust:

- Store files in a consistent folder structure

- Use file names that include date, client, and project

- Keep original emails (or export them) when they form part of the evidence

- Backup your records (cloud plus local backup is ideal)

If you rely heavily on messaging apps for business, consider exporting important chats or saving key confirmations as PDFs, because phones get lost and accounts get closed.

Practical organisation: a system that works for real sole traders

Record keeping fails when it feels like a separate job. The best systems are simple and repeatable. A low-friction approach is to maintain a “job folder” for each client project (or each month for small recurring work) that contains:

- The quote/proposal

- The accepted terms (signed contract, acceptance email, or platform record)

- Purchase order (if provided)

- Invoices issued

- Proof of payment

- Key correspondence (scope changes, approvals, cancellations)

- Supplier invoices linked to the job (if you track job costs)

Even if you never create formal contracts, you’ll have a clear narrative for each project. If HMRC asks about a particular income line or expense, you can pull the whole story in minutes.

When signed contracts are especially worth keeping

While signed contracts aren’t always mandatory, there are situations where it is genuinely worth making sure you have them and storing them carefully.

Long-term agreements

For ongoing services—maintenance, retainers, long support arrangements—the contract can clarify what payments relate to and can support the timing and nature of income.

High-value projects

The higher the amount, the more likely someone might ask questions later—whether that’s HMRC, a client, or your insurer. Signed contracts help reduce ambiguity.

IP, licensing, and usage rights

If you create content, code, designs, photos, or other intellectual property, contracts define what rights you’re granting. That may not be a core HMRC concern, but it can strongly affect your commercial position and could become relevant if payments are disputed.

Complex expense arrangements

If you incur costs on behalf of a client and recharge them, or you share costs, or you have unusual reimbursement terms, written agreements help demonstrate the business rationale and avoid confusion about whether amounts are income or pass-through.

Cancellation and refund terms

If you take deposits or book dates in advance (events, trades, sessions), having clear terms about cancellation and refunds can prevent disputes and also helps explain why money was retained or returned.

What about verbal agreements?

Verbal agreements happen all the time, and in many cases they are commercially normal. From a record-keeping perspective, verbal agreements are harder because they rely on memory. If a job is agreed verbally, the best practice is to confirm it in writing immediately afterward. A short email that says:

“Thanks for the call today. Just to confirm, I will provide X on Y date for £Z. Please reply to confirm.”

That one email can turn a “verbal” agreement into a solid record. If the customer replies “Confirmed,” you’ve created a simple, time-stamped evidence trail without drafting a full contract.

Do you need to keep supplier contracts too?

Yes, where they exist and are relevant. Many supplier relationships don’t involve a bespoke contract; you simply buy goods or services and get an invoice. But if you do have agreements—equipment leases, software subscriptions with specific terms, long-term service contracts, maintenance agreements—it’s sensible to keep them.

Supplier contracts can help explain:

- Why a cost was necessary for the business

- The length and nature of the commitment

- Whether there are cancellation fees or refunds

- Whether a cost is tied to a particular project or client

Even when you don’t have a negotiated contract, you may be bound by supplier terms and conditions. Keep the version applicable at the time you signed up, especially if pricing changes later.

Common mistakes sole traders make with contracts and records

1) Only keeping the invoice, not the context

An invoice might say “Services rendered.” That’s not very informative. If the expense might look unusual, keep the email or brief that explains it.

2) Losing the acceptance trail

It’s not enough to have a quote if you can’t show it was accepted. Keep the acceptance email, signed copy, or platform confirmation.

3) Not versioning terms and conditions

If you update your terms, keep old versions. You may need to show what terms applied to a job last year.

4) Relying on a phone for everything

If key agreements are in text messages, export them or store key confirmations somewhere more permanent.

5) Mixing personal and business communications

It’s not a disaster, but it makes retrieval harder. Where possible, use a dedicated business email or at least a consistent method for saving key records.

A sensible minimum: what to keep for each job

If you want a simple baseline without overthinking it, keep these items for each client job:

- A document showing what you agreed to do and for how much (quote/proposal/statement of work)

- Proof the client agreed (signed contract, email acceptance, or platform confirmation)

- Your invoice(s)

- Proof of payment (bank record)

- Any notes about changes, refunds, or disputes

If you have that, you’re usually in a strong position to answer questions about income and to show your business activity is genuine and properly recorded.

How contracts relate to expenses: “wholly and exclusively” in practice

Sole traders often worry about expenses because that’s where disagreements can happen. HMRC generally expects that business expenses are incurred wholly and exclusively for the purposes of the trade. Contracts can help demonstrate this, but they’re not the only way.

For example, if you claim specialist software for a client project, the contract might specify that you must deliver files in a certain format. That’s helpful. But if you don’t have that contract, a project brief, email instruction, or the deliverable itself can show the same point.

The practical takeaway: for any expense that might not obviously be “business,” keep an extra piece of context that explains why you needed it. That context can be contractual, but it can also be operational.

What if HMRC asks and you can’t produce a contract?

If HMRC asks for documents and you don’t have a signed contract, don’t panic. Provide what you do have: invoices, bank statements, email threads, and any other evidence that supports the transaction. Explain clearly what the arrangement was and why a formal contract wasn’t used.

In many cases, the issue is not “Where is the signature?” but “Is this believable, consistent, and supported by records?” If your bank deposits match your invoices, your expense claims match receipts, and you can show genuine business activity, you’re already doing most of what HMRC wants.

That said, if you repeatedly find you cannot evidence key parts of your business—especially for larger transactions—consider tightening your process going forward. A lightweight contract template or a “confirmation email” habit can dramatically reduce risk.

Simple contract habits that don’t slow you down

You don’t need a legal novel to improve your record keeping. Here are practical habits that help both commercially and for HMRC support:

Use a one-page agreement or terms sheet

For many services, a simple document covering scope, price, payment terms, cancellation, and responsibilities is enough.

Get acceptance in writing

If you don’t want signatures, get an email reply confirming acceptance. Save that reply with the quote/terms.

Put key terms on the quote or invoice

For deposits, cancellations, and payment terms, a clear statement can prevent disputes and also helps evidence the nature of payments.

Save everything as you go

Don’t rely on memory at year end. Drop documents into a folder when you send or receive them.

Back up your records

Cloud storage is helpful, but it’s still wise to maintain a second backup.

Final answer: keep what proves the story

So, do sole traders need to keep signed contracts for HMRC? Not always. HMRC’s real requirement is that you keep adequate records to support your income and expense claims. Signed contracts can be excellent evidence, and in higher-value, long-term, or complex arrangements they are especially worth keeping. But in many everyday sole trader situations, a combination of quotes, emails, invoices, receipts, and bank statements can be sufficient.

The best approach is to treat contracts as part of a broader evidence file: keep whatever documents make it easy to show what was agreed, what happened, and why the numbers on your tax return are correct. If you build a simple habit of saving accepted quotes or written confirmations alongside invoices and payment proof, you’ll be well prepared—whether HMRC ever asks questions or not.