What bookkeeping records should I keep if I’m below the VAT threshold?

Introduction: why bookkeeping still matters below the VAT threshold

If you’re below the VAT threshold, it can feel like you’ve earned a break from admin. No VAT returns, no VAT invoices, no chasing down which purchases are “recoverable.” But being outside VAT doesn’t mean being outside record-keeping. In fact, many small businesses get caught out precisely because they assume “I’m small” equals “I’m informal.” Good bookkeeping isn’t just about tax—it’s about control, confidence, and proof.

Even when VAT isn’t in the picture, you still need clear records to calculate your profit, prepare a tax return, manage cash flow, answer questions from a lender or landlord, and protect yourself if something goes wrong. Proper bookkeeping also helps you spot problems early: a customer who’s slow to pay, expenses creeping up, or stock shrinking. And if you’re near the VAT threshold, your records become the early-warning system that tells you when you might need to register.

This article explains which bookkeeping records you should keep if you’re below the VAT threshold, how to organise them, and the practical habits that make everything easier. It’s written for sole traders, freelancers, contractors, partnerships, and small limited companies—but the principles apply to anyone running a small business.

First, understand what “below the VAT threshold” does (and doesn’t) change

Being below the VAT threshold mainly changes one thing: you’re not required to charge VAT on your sales or submit VAT returns (unless you voluntarily register). That can simplify invoicing and pricing. But almost everything else in bookkeeping stays the same. You still need to record income and expenses, keep evidence, separate business and personal spending, and be able to show how your figures were calculated.

In practice, you’ll keep many of the same records as a VAT-registered business—just without the VAT detail and compliance steps. If you later register for VAT, having clean historical records also makes the transition smoother. The best approach is to build a record-keeping system that could scale up if your business grows.

The core bookkeeping records you should keep

Think of your bookkeeping records in two categories: (1) the “books” that summarise transactions and (2) the “evidence” that proves those transactions happened. You need both. A spreadsheet or accounting software file without supporting documents is fragile; a pile of receipts without summaries is chaos. The goal is to link every number to evidence and make the trail easy to follow.

1) Sales records: proving what you earned

Your sales records are the backbone of your accounts. Even below the VAT threshold, you must be able to show what income you received, when you received it, and what it related to. Good sales records also help you track who owes you money and whether you’re approaching the VAT threshold.

Invoices issued (or sales receipts, if you don’t invoice)

If you invoice customers, keep copies of every invoice you send. Ideally, your invoices should be numbered sequentially (even if you’re small). Sequential numbering makes it obvious if anything is missing and helps you reconcile your totals. If you don’t invoice—say you sell online or take payments in person—keep sales receipts, order confirmations, till reports, or platform transaction reports.

Each invoice or sales record should clearly show: the date, the customer’s name (or identifier), what you sold, the amount charged, and payment terms if relevant. Because you’re not VAT-registered, you typically wouldn’t show VAT on the invoice; but it’s still wise to state something like “Not VAT registered” or “VAT not charged” so customers understand why there’s no VAT line.

Sales ledger (accounts receivable)

A sales ledger is a list of invoices issued and payments received against them. You can maintain this in accounting software, a spreadsheet, or even a simple table. The key is that it lets you see outstanding invoices, partial payments, and overdue balances.

If you always get paid immediately (for example, card payments at the time of sale), a full ledger may be less critical, but you should still be able to match each sale to a payment record and a date.

Bank deposit records and payment processor statements

Payments don’t always hit your bank account exactly as customers pay. If you use platforms like card readers, online payment processors, or marketplaces, keep their statements or exports. These show gross sales, fees withheld, chargebacks, and the net amount paid to you. Without them, it’s easy to accidentally record only the net deposits and understate your income (or misclassify fees).

Credit notes and refunds

If you issue refunds, discounts after invoicing, or adjustments, keep records of them—often as credit notes or refund confirmations. These reduce your income, and you need a clear paper trail to explain why your sales totals don’t match invoice totals. Refund records also help you spot customer service patterns and recurring issues.

2) Purchase and expense records: proving what you spent

Expenses reduce taxable profit (when they are allowable) and help you understand the true cost of running your business. Below the VAT threshold, expenses still matter just as much; the difference is that you’re typically treating costs as gross amounts without separating VAT.

Receipts and supplier invoices

Keep receipts for day-to-day spending and invoices for larger purchases. A receipt should show the supplier, date, amount, and what was purchased. If it’s not clear what the item was, write a short note on it (physically or digitally) while you still remember. For digital receipts (emails, PDFs), save them in a structured folder or within accounting software.

For recurring costs—rent, subscriptions, software, phone contracts—keep the original contract and the recurring invoices or statements. The contract is useful if there’s ever a question about what the payment relates to or whether the expense is business-only.

Expense ledger (accounts payable)

An expense ledger summarises what you’ve spent, by date and category. It can also track bills you haven’t paid yet (if you receive supplier invoices on credit terms). This is especially useful if cash flow is tight, because it shows upcoming obligations and helps you avoid surprises.

Travel and subsistence records

Travel costs are commonly claimed and commonly misunderstood. Keep tickets, booking confirmations, fuel receipts, parking receipts, toll records, and notes on the business purpose. For meals while travelling for business, keep receipts and record who attended and why it was necessary. Even if you’re small, the “why” matters: without context, a meal receipt can look personal.

Mileage logs (if you use your own vehicle)

If you claim mileage, you need a mileage log that shows date, start and end locations, miles travelled, and the business reason. A simple app can do this, or you can keep a spreadsheet. The important part is consistency. A reconstructed log created long after the fact is less credible than a contemporaneous record.

Home office records (if you work from home)

If you claim some home running costs, keep evidence of how you calculated the business portion. That might include utility bills, internet bills, rent or mortgage interest statements (depending on what you’re allowed to claim), and a simple calculation showing your methodology (for example, a percentage based on rooms used or time spent). Even if you use a simplified allowance, keep a note of the basis used and when you used it.

3) Bank and cash records: tying everything together

Bank records are often the single most useful set of documents for bookkeeping because they provide an independent timeline of payments in and out. But bank statements alone aren’t enough. They need to be reconciled to invoices, receipts, and internal records.

Business bank statements

If you have a business bank account, keep all statements. If you don’t (some sole traders start without one), consider opening one anyway. Separating business and personal transactions saves time, reduces errors, and makes it easier to demonstrate that your records are reliable.

Even with a separate account, you should regularly reconcile: match each bank transaction to an invoice, receipt, payroll item, tax payment, or transfer. Reconciliation is how you catch missing receipts, duplicated entries, and miscategorised spending.

Cash takings records (if you accept cash)

Cash is where record-keeping often breaks down. If you take cash payments, keep a cash book. Record each day’s cash sales, cash expenses paid out of the till, and cash deposits into the bank. Keep till rolls or daily summary reports if you use a till system.

If you spend cash on business expenses, keep the receipts and record them in the cash book. Otherwise, it’s easy to lose track and understate income or overstate expenses. A simple rule helps: treat your cash like a separate “mini bank account” that you reconcile just like your bank.

Petty cash records

If you keep petty cash for small purchases, maintain a petty cash log and keep all receipts. Each time you top up petty cash from the bank, record it as a transfer. Each time you spend petty cash, record the expense with a receipt. This prevents the classic “petty cash black hole” where money disappears without trace.

4) Records for assets and big purchases

Not all spending is treated the same. Some purchases are “capital” in nature—equipment, computers, vehicles, furniture—things that last beyond a short period. For these, you should keep extra documentation because you may need to track them over several years.

Fixed asset register

A fixed asset register is simply a list of major assets your business owns. It typically includes: purchase date, supplier, description, cost, and notes about business use. This helps you manage depreciation or allowances and prevents you from forgetting about assets you’ve bought (which can affect your tax calculations).

Warranties, finance agreements, and insurance documents

Keep warranty details for equipment, finance or hire purchase agreements if you spread payments, and insurance policies covering business assets. These documents can be crucial if there’s a claim, a dispute, or a need to explain why costs were treated a certain way.

5) Payroll and staff records (if you employ anyone)

If you have employees—even one part-timer—you have additional record-keeping obligations. VAT status doesn’t change this. Payroll records often need to be accurate down to the penny and kept consistently.

Payroll reports and payslips

Keep payslips issued, payroll summaries, and records of gross pay, deductions, and net pay. Keep details of pay rates, hours worked, overtime, and bonuses. If you use payroll software or an outsourced provider, keep their reports and confirmations.

Employment contracts and HR records

Keep employment contracts, changes to terms, and records of statutory payments where applicable. Even if you’re friendly and informal as a small employer, the paperwork is your safety net if there’s ever a disagreement.

Pension contributions (if applicable)

If you have workplace pension obligations, keep records of enrolment, contributions, and communications. These records matter for compliance and for answering employee queries.

6) Records for business structure: sole trader vs limited company

Below the VAT threshold, bookkeeping requirements can still differ depending on how your business is structured. The fundamental transaction records are the same, but what you must produce and store can vary.

Sole traders and partnerships

If you’re a sole trader or in a partnership, your focus is on tracking business income and allowable expenses, keeping evidence, and producing figures for your tax return. You’ll also want to keep records of drawings (money you take out for personal use) so you don’t accidentally treat personal spending as a business expense.

Limited companies

If you run a limited company, you’ll also need to keep records to support company accounts and to show separation between the company’s finances and your personal finances. This includes director’s loan account records if you pay for things personally and reimburse yourself later, or if you withdraw funds outside payroll/dividends. Keep board minutes and dividend paperwork where relevant. Even if your company is small, these records help demonstrate good governance and reduce headaches later.

7) Records related to the VAT threshold itself

Even if you’re below the threshold today, you should keep records that help you monitor turnover and determine whether you need to register. This is particularly important if your business income fluctuates or if you have occasional large contracts.

Rolling turnover calculations

Create a simple monthly check that totals your taxable turnover over the relevant rolling period (often a 12-month window, depending on your jurisdiction). Keep a worksheet or software report showing the calculation. This gives you a defensible method and prevents accidental late registration.

Also note that “turnover” for threshold purposes may not be the same as “profit.” You can be unprofitable and still exceed the VAT threshold if sales are high. Keeping clean sales records makes this monitoring straightforward.

Notes on unusual income

If you have one-off transactions—selling a major asset, receiving a grant, or earning income that may be treated differently—keep notes and supporting documents. This helps you decide whether it counts toward the VAT threshold and how it should be treated for tax.

8) Evidence for mixed-use and personal transactions

Small businesses often have blurred lines—using a personal phone for business calls, working from home, buying a laptop that’s used partly for business and partly for personal life. These situations are common, but they require clear documentation.

Apportionment calculations

When you split a cost between business and personal use, keep a simple calculation showing how you arrived at the business portion. For example, you might estimate business use of a phone based on call logs or business hours. For a vehicle, mileage logs can support the business use percentage. The point isn’t perfection; it’s reasonableness and consistency.

Director’s loan account records (for limited companies)

If you’re operating through a limited company and you pay business expenses personally, keep proof of the expense and a record that the company owes you. If the company pays for personal items, record that too. This keeps the accounts clean and reduces the risk of accidentally creating tax problems through informal withdrawals.

How to organise your records: a practical system that stays manageable

The best record-keeping system is the one you’ll actually maintain. Fancy labels and complex workflows are useless if you abandon them after a busy month. A good system balances structure with simplicity.

Use a consistent filing structure

If you store documents digitally, use a folder structure that mirrors your bookkeeping periods. For example:

Year > Month > Income / Expenses / Bank / Payroll / Contracts.

Within Expenses, you can separate by category (Travel, Supplies, Subscriptions) if you like, but don’t overcomplicate it. The core aim is to be able to find any document quickly.

Name files in a searchable way

A practical file naming format is: YYYY-MM-DD_Supplier_Amount_Description. For invoices you issue, include your invoice number. Consistent naming means you can search for “Amazon 2025-11” or “Invoice 1042” and find what you need instantly.

Choose one source of truth for transaction lists

Whether you use a spreadsheet or accounting software, pick one place where every transaction is recorded. Avoid maintaining multiple “mini systems” (a spreadsheet plus notes plus a banking app list plus a box of receipts). If you must capture transactions in more than one place, set a weekly routine to consolidate them into your main ledger.

Digitise receipts early

Receipts fade, tear, and get lost. If you can, photograph or scan them as soon as possible and store them in your system. Many accounting tools allow you to attach receipts directly to transactions, which is ideal for later retrieval. If you prefer manual filing, still consider digitising—at least for high-value items and anything that’s likely to be questioned.

Bookkeeping habits that save you hours later

Keeping the right records isn’t just about what you store; it’s about how you maintain the system. These habits are simple, but they’re the difference between tidy books and a stressful scramble.

1) Reconcile weekly (or at least monthly)

Reconciliation is matching bank transactions to your recorded income and expenses. Do it regularly and you’ll catch errors while they’re small. Leave it for six months and you’ll be trying to remember what “POS 018473” was and why there are three similar payments to the same supplier.

2) Separate business and personal spending

Even if you’re a sole trader, mixing spending creates confusion. A dedicated business bank account and business card make record-keeping dramatically easier. If you do mix occasionally, label those transactions clearly and keep the supporting notes.

3) Keep notes for anything that isn’t obvious

If you buy something that could be personal, write the business purpose on the receipt or in the transaction memo. If you take a client to lunch, note who and why. If you travel, note the project. These tiny notes can save you from uncertainty later.

4) Track what customers owe you

Below the VAT threshold, cash flow can still be tight. Keep an aged receivables list: which invoices are due, overdue, and by how much. This isn’t just “accounting”—it’s a practical tool to get paid on time and keep your business stable.

5) Review your turnover against the VAT threshold

If you’re growing, build a routine to review turnover. Many people only think about VAT at year-end, when it may be too late. A simple monthly check reduces risk and helps you plan pricing if you might register soon.

Common record-keeping mistakes below the VAT threshold

Small businesses often fall into predictable traps. Avoiding these makes your bookkeeping cleaner and less stressful.

Recording only what hits the bank

It’s tempting to treat bank deposits as “income” and bank withdrawals as “expenses” and call it done. But this misses crucial details: unpaid invoices, fees deducted by payment processors, refunds, personal transfers, and loan movements. Your bank is a starting point, not the full story.

Losing receipts for small purchases

Small purchases add up. If you regularly buy supplies, parking, materials, or small tools, missing receipts can materially affect your profit figure. The solution isn’t perfection—it’s a habit: snap a photo, store it, move on.

Not documenting business purpose

An expense without a business purpose is vulnerable. Even if the expense is legitimate, if you can’t explain it, you may hesitate to claim it or struggle to justify it later. A one-line note can be enough.

Ignoring cash transactions

Cash can quietly undermine your records. If you accept cash, treat it like a bank account you reconcile. Record it daily or at least weekly, and keep a clear path from sale to deposit or expense.

Failing to keep records for assets and financing

Buying equipment on finance, upgrading a laptop, or purchasing a vehicle can have tax and accounting implications beyond the month of purchase. Keep agreements, invoices, and registers so your accounts remain accurate over time.

How long should you keep bookkeeping records?

Record retention rules vary depending on where you are and your business structure. Even if you’re below the VAT threshold, you should generally keep records for several years because tax authorities can request evidence after you’ve filed returns. As a practical approach, keep everything for at least the standard retention period that applies to your jurisdiction and business type, and consider keeping key documents longer if they relate to assets, long-term contracts, or potential disputes.

When in doubt, keep records longer rather than shorter—digital storage is usually inexpensive, and the cost of missing paperwork can be far higher than the cost of storing it. If you store documents digitally, back them up in at least two places (for example, cloud storage plus an external drive) so you’re protected against loss.

What your record set might look like in a simple month

To make this concrete, imagine a small service business below the VAT threshold. In a typical month, your records might include:

Copies of 10–20 customer invoices (or platform sales reports), your bank statement for the month, a payment processor statement showing fees, receipts for supplies and travel, a mileage log for client visits, a subscription invoice for software, a phone bill with a note about business use, and a simple sales/expense ledger summarising everything.

That’s not overwhelming. The workload becomes heavy only when documents are scattered and the bookkeeping is postponed. If you keep the core records as you go, month-end bookkeeping can be a quick review rather than a dreaded project.

Should you use spreadsheets or accounting software?

You can keep excellent records with either method. The right choice depends on transaction volume, complexity, and your tolerance for admin.

A spreadsheet can work well if you have relatively few transactions, you invoice simply, and you’re disciplined about filing receipts and reconciling your bank. The advantages are low cost and flexibility. The disadvantages are that spreadsheets are easier to break, harder to audit, and more manual when your business grows.

Accounting software can automate bank feeds, reconciliations, invoice numbering, and receipt storage. It often makes it easier to produce reports and spot issues. The trade-off is subscription cost and the learning curve. If you’re approaching the VAT threshold or expect to grow, software can reduce future pain because it’s built for scalability.

Final checklist: the bookkeeping records to keep below the VAT threshold

Here’s a straightforward checklist you can use to confirm you’re covered:

Sales records: copies of invoices or sales receipts, customer payment records, payment processor statements, refund and credit note records, and a sales ledger (even a simple one).

Expense records: supplier invoices and receipts, subscription and contract paperwork, travel receipts and business-purpose notes, mileage logs if claiming mileage, and a categorised expense ledger.

Bank and cash records: bank statements, bank reconciliation records, cash takings logs if you accept cash, and petty cash logs with receipts.

Assets and finance: invoices for major purchases, a fixed asset register, finance agreements, warranties, and insurance documents.

People and payroll (if relevant): payroll reports, payslips, employment contracts, pension records, and any statutory payment documentation.

VAT threshold monitoring: rolling turnover calculations and notes on unusual income that might affect threshold decisions.

Conclusion: keep it simple, consistent, and defensible

Being below the VAT threshold can simplify certain admin tasks, but it doesn’t remove the need for solid bookkeeping. The most important idea is defensibility: your records should make it easy to explain how you earned what you earned, spent what you spent, and arrived at your profit. That doesn’t require complex accounting—just consistent habits and a clear link between transactions and evidence.

If you build a tidy record-keeping system now, you’ll reduce stress at tax time, gain better control over your business, and be ready if you ever grow into VAT registration. Keep the core records, reconcile regularly, and store everything in a way that you can retrieve quickly. Below the VAT threshold is a great place to develop strong bookkeeping habits—without the extra pressure of VAT complexity.