How long do sole traders need to keep accounting records?

Understanding Record Keeping for Sole Traders

If you run a business as a sole trader, keeping proper accounting records is not optional—it is a legal requirement and a practical necessity. Accurate records help you understand how your business is performing, prepare tax returns, deal with audits, and make informed decisions. Yet one of the most common questions new and experienced sole traders ask is: how long do I need to keep my accounting records?

This article provides a detailed, practical explanation of record retention requirements for sole traders, why these rules exist, what types of records you must keep, and how you can manage them efficiently using modern digital tools. Throughout, we will also explain how using a free invoicing and record-keeping app like Invoice24 can significantly reduce your administrative burden while keeping you compliant.

What Are Accounting Records for Sole Traders?

Before discussing how long records must be kept, it is important to understand what counts as an accounting record. In simple terms, accounting records are documents that show your business income, expenses, assets, and liabilities.

For sole traders, accounting records typically include:

• Sales invoices issued to customers
• Purchase invoices and receipts for expenses
• Bank statements and payment confirmations
• Cash books and petty cash records
• Mileage logs and travel expense records
• Payroll records if you employ staff
• VAT records if you are VAT-registered
• Year-end accounts and tax calculations

Whether these records are stored digitally or on paper, they are all subject to retention rules.

Why Record Retention Matters

Keeping records for the required period is not just about avoiding penalties. There are several important reasons why proper record retention matters for sole traders.

First, tax authorities may review your tax returns years after they are submitted. If you cannot provide evidence to support your figures, you may face additional tax bills, interest, and fines.

Second, accounting records help protect you in disputes with customers, suppliers, or lenders. An invoice or receipt can quickly resolve disagreements over payments.

Third, good records make it much easier to understand your business performance, spot trends, and plan for growth.

Using a digital invoicing and record-keeping solution like Invoice24 helps ensure that all your documents are stored securely and are easy to retrieve whenever you need them.

How Long Do Sole Traders Need to Keep Accounting Records?

The exact retention period depends on your country’s tax laws, but there are some widely accepted standards that apply in many jurisdictions.

In most cases, sole traders are required to keep accounting records for between five and seven years from the end of the relevant tax year. This period allows tax authorities enough time to review, audit, or question past tax returns.

Even if your business has stopped trading, the obligation to keep records usually remains until the retention period has expired.

Typical Retention Periods Explained

Although rules vary slightly by location, the following timeframes are commonly applied:

Income and expense records: Usually must be kept for at least five years. This includes invoices, receipts, and bank statements.

Tax returns and supporting documents: Often required to be kept for six to seven years, depending on local regulations.

VAT records: If you are VAT-registered, VAT-related documents often need to be kept for six years or longer.

Payroll records: If you employ staff, payroll records may need to be kept for up to six years.

Because requirements can differ, many sole traders choose to keep records for a minimum of seven years to stay on the safe side.

What Happens If You Don’t Keep Records Long Enough?

Failing to retain accounting records for the required period can lead to serious consequences.

If you are audited and cannot provide supporting documents, tax authorities may estimate your income and expenses. These estimates often result in higher tax bills than necessary.

You may also face penalties or fines for non-compliance, even if the missing records were lost accidentally.

Beyond legal issues, poor record keeping can damage your ability to secure loans, attract investors, or manage your cash flow effectively.

Paper Records vs Digital Records

Many sole traders still keep paper receipts and invoices in folders or boxes. While this can technically meet legal requirements, it comes with risks such as loss, damage, and difficulty accessing information.

Digital records are increasingly accepted—and often encouraged—by tax authorities. Digital invoicing and storage offer several advantages:

• Easier organization and search
• Reduced risk of loss or damage
• Automatic backups
• Faster tax preparation
• Less physical storage space

Invoice24 is designed specifically to help sole traders move away from paper-based systems. By creating and storing invoices digitally, you automatically build a compliant record archive without extra effort.

What Records Should You Definitely Keep?

Some records are particularly important and should always be retained for the full recommended period.

Sales invoices: These prove your income and are essential for tax reporting.

Expense receipts: Without these, you may lose the right to claim deductions.

Bank statements: These provide an independent record of your business transactions.

Contracts and agreements: These may be needed to resolve disputes or clarify obligations.

Using Invoice24 ensures that your sales invoices are safely stored and easily accessible years later, even if your device is lost or replaced.

How Long Should You Keep Records If You Stop Trading?

Many sole traders assume that once they close their business, they can discard their records. This is usually not true.

If you stop trading, you must still keep your records for the full retention period calculated from the end of the last tax year in which you traded.

For example, if your business stopped in 2025 and records must be kept for six years, you would need to retain them until at least 2031.

Keeping digital records through Invoice24 makes this much easier, as you do not need to store boxes of paperwork long after your business has closed.

Special Situations That May Require Longer Retention

In some cases, you may need to keep records for longer than the standard period.

If you submit a late tax return, the retention period may start later.

If you are under investigation or audit, you may be required to keep records until the issue is resolved, even if this exceeds the normal timeframe.

If you own assets such as property or equipment, records relating to their purchase and sale may need to be kept for longer to calculate capital gains.

Best Practices for Record Retention

To stay compliant and reduce stress, sole traders should follow a few best practices.

First, keep records consistently throughout the year rather than trying to organize everything at tax time.

Second, store records securely with backups. Cloud-based systems offer strong protection against data loss.

Third, label and categorize records clearly so they are easy to retrieve.

Invoice24 helps with all of these by automatically organizing invoices, tracking payments, and storing data securely in the cloud.

How Invoice24 Simplifies Record Keeping

Invoice24 is a free invoicing app built with sole traders in mind. Instead of juggling spreadsheets, folders, and email attachments, you can manage everything in one place.

Key benefits include:

• Quick invoice creation
• Automatic invoice numbering
• Secure long-term storage
• Easy export for accountants
• Access from anywhere

Because your invoices are stored digitally, you are already meeting a major part of your record-keeping obligations without additional work.

Preparing for Tax Season with Confidence

When tax season arrives, having well-organized records can make the difference between a smooth process and weeks of stress.

With Invoice24, you can quickly review your income, check which invoices have been paid, and export data for your tax return or accountant.

This saves time, reduces errors, and helps ensure that you only pay the tax you actually owe.

Common Record-Keeping Mistakes Sole Traders Make

Even experienced sole traders can fall into common traps.

These include losing receipts, mixing personal and business expenses, failing to back up records, or discarding documents too early.

Using a dedicated invoicing and record-keeping app like Invoice24 helps avoid many of these mistakes by keeping everything organized and centralized.

Final Thoughts on Record Retention for Sole Traders

Keeping accounting records for the correct length of time is a legal obligation and a smart business practice. In most cases, sole traders should plan to retain records for at least five to seven years, even after the business has closed.

By adopting digital tools and building good habits, record keeping does not have to be complicated or time-consuming.

Invoice24 offers a simple, free way to manage invoices and build a reliable accounting record archive that supports your business today and protects you in the future.

Whether you are just starting out or have been trading for years, investing in proper record keeping now will save you time, money, and stress in the long run.