What records do small businesses need to keep for HMRC?

What “records” means for HMRC, and why it matters

When HMRC talks about “records,” it means the evidence that supports the figures you put on your tax returns and reports. For a small business, that usually includes documents and data that show what you earned, what you spent, what you paid people, what you claimed as allowable expenses, and what taxes you calculated and paid. The point is simple: if you ever need to explain or prove the numbers you reported, your records should allow you to do that clearly and quickly.

Good record keeping is not only about avoiding penalties. It helps you run the business day to day. With up-to-date records you can see whether you’re profitable, which customers pay on time, whether costs are creeping up, and whether you can afford to invest. It also makes life much easier when you apply for finance, sell the business, bring in a partner, or simply want peace of mind that you’re on top of your obligations.

The challenge for many small businesses is that “records” sounds vague. The practical approach is to think in categories: money coming in, money going out, assets you buy and use, people you pay, and any tax-specific working papers that explain how you arrived at certain totals. The categories you need also depend on how your business is structured and which taxes you’re responsible for.

Start with your business structure and the taxes you deal with

HMRC record-keeping needs change depending on whether you trade as a sole trader, a partnership, or a limited company. The difference isn’t just paperwork for paperwork’s sake. It affects what returns you submit, how profits are taxed, and which records are relevant.

If you’re a sole trader, you’ll usually keep records to support your Self Assessment tax return and National Insurance calculations. If you’re in a partnership, you’ll need records that support the partnership return and each partner’s share. If you run a limited company, you’ll need records for Corporation Tax, and you’ll also have company law obligations like maintaining statutory records. Many small limited companies also have PAYE obligations (if they pay salaries) and VAT obligations (if registered).

On top of the core taxes, you might also have responsibilities for Construction Industry Scheme (CIS), student loan deductions, benefits in kind, or business rates. The aim is to map your situation to the records you must keep, then build a system that makes those records easy to store and retrieve.

Core records every small business should keep

Even though each business is different, there is a “core pack” of records that almost every small business will need. If you put these in place, you’ll cover the majority of what HMRC expects to see when checking your figures.

Sales and income records

Your income records show what you sold, when you sold it, who you sold it to, and how you were paid. These records help you prove turnover, manage cash flow, and calculate profit correctly.

Typical income records include:

Invoices issued to customers, including credit notes for refunds or price reductions. If you don’t use invoices (for example, you’re a cash-based retail business), you still need a reliable record of daily takings and sales totals.

Sales receipts and till reports, such as Z-reads, daily summaries, or point-of-sale exports. If you sell online, keep platform statements and order summaries that show gross sales, fees, refunds, and net payouts.

Evidence of payments received, such as bank statements, card processor reports, PayPal/Stripe summaries, and cash banking slips.

Records of other income like grants, commissions, referral fees, insurance payouts, or rental income related to the business. Make sure you keep the documents that explain what the income was for and any conditions attached.

If you offer services, also keep job sheets, timesheets, signed acceptance forms, contracts, and correspondence that link the work performed to the invoice raised. If a customer disputes an invoice later, these supporting records can be invaluable.

Purchase and expense records

Expense records show what you spent and why the cost was incurred. To claim an expense against tax, you generally need to be able to show that it was wholly and exclusively for business purposes (or the business portion if it was mixed use).

Typical expense records include:

Supplier invoices, receipts, and statements. Digital copies are usually fine as long as they are clear and complete.

Bank and card statements that show what was paid and when. These are a useful cross-check but usually aren’t enough on their own because they don’t always show what the purchase was for.

Petty cash records for small cash purchases, with receipts and a simple log of dates, amounts, and purpose.

Expense claims submitted by staff or directors, including supporting receipts and an explanation of business purpose. If you reimburse mileage or subsistence, keep the calculations and the underlying journeys.

For recurring bills such as rent, utilities, phone, software subscriptions, and insurance, keep copies of contracts and annual renewal documents, as well as monthly invoices. These help show what you were paying for and the periods covered.

Banking and finance records

HMRC expects you to be able to tie your recorded income and expenses back to real-world transactions. That’s where banking and finance records come in.

Key records to keep include:

Business bank statements for all accounts used for the business. If you use a personal account for business as a sole trader, keep those statements too and make sure your bookkeeping clearly separates personal from business transactions.

Loan and finance agreements, including hire purchase and leasing contracts. Keep the repayment schedules and interest statements, as tax treatment can differ between interest and capital repayments.

Merchant service statements for card payments. These often show fees and chargebacks that need to be recorded correctly.

Records of cash movements, including cash withdrawals, cash deposits, and cash paid into the business by the owner. A clear narrative around cash reduces questions later.

Accounting records and summaries

Whether you use spreadsheets, a bookkeeping app, or an accountant, you should keep the underlying accounting records that show how you built up the totals in your accounts and returns. This is especially important if you use estimates or apportionments.

Useful accounting records include:

A cash book or transaction listing showing income and expenses by date, amount, supplier/customer, and category.

A chart of accounts or categories used, so it’s obvious how you classified transactions.

Year-end accounts, profit and loss reports, balance sheets (if applicable), and supporting schedules such as accruals, prepayments, and provisions.

Working papers for key judgments, like how you split home office costs between business and personal use, or how you treated a one-off large purchase.

VAT records for VAT-registered businesses

If you are VAT registered, your record-keeping becomes more structured because you’re tracking output VAT on sales and input VAT on purchases, and you must be able to support the figures in your VAT returns.

VAT records commonly include:

VAT invoices issued and received, including the correct VAT details where required.

VAT account summaries that show the total output VAT, total input VAT, and the net VAT payable or reclaimable for each period.

Evidence supporting VAT treatment decisions, such as why a supply was standard-rated, reduced-rated, zero-rated, exempt, or outside the scope. For some industries this can be especially important.

Records of imports and exports and the documents that support the VAT treatment, such as shipping documents and customs paperwork.

Adjustments and corrections, including partial exemption calculations if applicable and any error corrections you make in later returns.

If you use a software solution for VAT reporting, keep the digital records and the audit trail showing changes. You should also keep copies of VAT returns submitted and any correspondence with HMRC relating to VAT.

PAYE and payroll records if you employ staff or pay yourself a salary

If you have employees, or if you’re a company director paid through payroll, you’ll need PAYE records. These documents support the pay, tax, National Insurance, pensions, and statutory payments you report and pay over.

Payroll records to keep include:

Employee details, including full name, address, date of birth, National Insurance number, start date, and leaving date.

Employment contracts, offer letters, and any changes to terms such as pay rises, bonuses, or reduced hours.

Pay records: gross pay, deductions, net pay, and the dates paid. This includes payslips and payroll reports.

RTI submissions and confirmations, including Full Payment Submissions (FPS) and any Employer Payment Summaries (EPS).

Records of statutory payments such as Statutory Sick Pay and Statutory Maternity/Paternity/Parental payments, including evidence of entitlement and calculations.

Pension records, including auto-enrolment assessments, contribution calculations, opt-in/opt-out notices, and pension provider submissions.

For expenses and benefits, keep records of what you provided, when, and how you valued the benefit, as these can affect tax reporting.

CIS records if you work in construction

If you operate in construction, you may need to keep records under the Construction Industry Scheme (CIS). The exact records depend on whether you are a contractor, a subcontractor, or both.

Typical CIS records include:

Verification records for subcontractors, including verification numbers and confirmation of gross or net status.

Monthly payment and deduction statements for subcontractors.

Records of CIS returns submitted, deductions calculated, and amounts paid to HMRC.

Contracts, invoices, and evidence of materials costs where relevant, as CIS deductions often apply to labour elements.

Records for assets, equipment, and capital allowances

Not every purchase is treated as a day-to-day expense. Some items are capital assets, like equipment, vehicles, machinery, and significant improvements. The records for these purchases support capital allowance claims and help you track what you own and when you bought it.

Asset records to keep include:

Purchase invoices and finance agreements showing cost, date, and ownership details.

Evidence of business use, especially for assets with possible private use such as cars or dual-purpose equipment.

Disposal records when you sell or scrap an asset, including sale invoices, part-exchange details, and any costs of disposal.

Capital allowance schedules showing how you calculated allowances each year, including any annual investment allowance claims and balancing charges or allowances on disposal.

For vehicles, keep mileage logs if you’re claiming mileage or if you need to demonstrate business use. A mileage log should ideally include date, start point, destination, purpose, and miles driven.

Stock and inventory records

If you sell products, stock records matter because they affect profit calculations. Even if you’re small, you should be able to demonstrate how you arrived at your stock figure at the end of the year and how you tracked stock movements.

Stock-related records include:

Purchase records for stock items, including supplier invoices and delivery notes.

Stock counts and stock valuation workings at year end. Keep notes of how you valued stock, especially if you have damaged or obsolete items.

Records of stock written off, stolen, or destroyed, and any insurance claims related to stock losses.

If you operate in food, drink, or other sectors with high waste, records of wastage can also support your margins and help explain unusual fluctuations.

Business use of home records

Many small businesses run from home, at least in part. If you claim a portion of home costs as business expenses, keep records that show what you claimed and how you calculated the business share.

Useful documents include:

Utility bills, council tax bills, mortgage interest statements or rent agreements (where relevant), and home insurance documents.

A written note of the method used to apportion costs, such as number of rooms, time used, or a simplified flat-rate approach where appropriate.

If you have a dedicated home office, keep evidence of how the space is used. Mixed-use is common; your records should reflect that and support your claim.

Travel, mileage, and subsistence records

Travel and subsistence can be an area HMRC looks at closely because it often involves mixed personal and business use. Good records reduce uncertainty.

Keep:

Receipts for trains, taxis, parking, hotels, and meals where allowable. Include notes on who travelled, where, and why.

Mileage logs if claiming mileage for business journeys. If you claim actual vehicle costs instead, keep fuel, servicing, insurance, and repair invoices along with evidence of business versus private usage.

Diary entries, job schedules, or meeting confirmations that match the travel records. These supporting details can help show the business purpose of a journey.

Marketing, subscriptions, and professional services records

Marketing spend and professional costs are common in small businesses. Keep the invoices and, where useful, the underlying agreements.

Examples include:

Advertising invoices and reports from platforms that show spend and dates.

Website hosting, domain renewal, and software subscription invoices.

Professional fees invoices for accountants, solicitors, consultants, and bookkeepers, including engagement letters and any major advice reports that relate to significant transactions.

Records of contracts, agreements, and key correspondence

Not everything HMRC might need is a receipt. Sometimes a contract or an email thread explains the commercial reality behind a number. This is especially true for large, unusual, or one-off transactions.

Keep copies of:

Customer and supplier contracts, including terms of trade and pricing agreements.

Lease agreements for premises or equipment.

Loan agreements and shareholder agreements if relevant.

Evidence for disputes, refunds, or settlements, including correspondence and settlement agreements.

For grants or funding, keep the grant award letter, conditions, and evidence of how funds were used if required. The context matters, and these documents provide it.

Limited companies: company records you must also maintain

If you operate as a limited company, your obligations are not only tax-related. Company law requires you to maintain certain statutory records. While these are often handled by company secretarial software or your accountant, you should still understand what they are and ensure they’re kept up to date.

Common statutory records include:

Registers of shareholders (members) and people with significant control (PSC), where applicable.

Records of directors and company officers and any changes over time.

Minutes of important decisions and board meetings, even if the “board” is just you. For example, decisions about dividends should be documented properly.

Share allotments, share transfers, and confirmation of shareholdings.

While Companies House filings are separate from HMRC filings, they interact. The accounts you file, the dividends you declare, and the payroll you run should all be consistent with each other and supported by proper records.

Dividends, drawings, and owner payments

How you take money out of the business affects which records you need.

If you’re a sole trader, drawings are not an expense, but you should still track them because they affect cash flow and help reconcile bank accounts. Keep records of transfers to yourself and any personal payments made from business funds.

If you’re a company director/shareholder taking dividends, you should keep:

Dividend paperwork, including dividend vouchers and board minutes or written resolutions approving dividends.

Evidence that the company had sufficient distributable profits at the time dividends were declared. This usually comes from management accounts or up-to-date bookkeeping.

Director’s loan account records showing money lent to or borrowed from the company. This is important because tax consequences can arise if a director owes money to the company at certain points.

How long do you need to keep records?

HMRC expects businesses to keep records for a period that allows checks to be made. In practice, you should plan to keep records for several years, and sometimes longer depending on the tax and the situation. As a small business owner, the safest habit is to keep records in an organised way for at least the standard retention period that applies to your circumstances, and to extend that if there’s an ongoing enquiry, an appeal, or anything unusual that might later need explanation.

Different taxes and circumstances can lead to different retention expectations. For example, if you submit a return late, if HMRC opens an enquiry, or if there is an error that needs correcting, the timeline for record retention can effectively stretch. Because of this, many businesses choose to keep records for longer than the minimum, particularly for major assets, property-related documents, and agreements with long-term impact.

The key practical takeaway is to design a storage system that makes long-term retention easy. If record keeping feels painful, you’re more likely to skip it. If it’s simple, you’ll keep good records without thinking about it.

Paper vs digital: what HMRC expects in practice

Most small businesses now keep records digitally, and that’s typically acceptable as long as the records are accurate, readable, and complete. The focus should be on preserving the content of the record rather than the format. A clear digital copy of a receipt is usually fine, but it needs to show the key details such as supplier, date, amount, and what was purchased.

Digital record keeping also has practical advantages. You can search for documents, back them up easily, and share them with your accountant without mailing folders around. However, digital also brings new risks: files can be lost, systems can change, and accounts can be closed. A robust approach includes backups and a sensible file naming convention.

For paper records, keep them organised and protected from damage. If you scan paper documents, keep the scans in a structured archive. If you rely on an app that “reads” receipts, periodically check that the images are legible and the key details have been captured correctly.

Making Tax Digital and the importance of an audit trail

For businesses that fall under digital reporting requirements, the quality of your digital records matters as much as the existence of the records. An “audit trail” is simply the ability to trace a reported number back through your bookkeeping to the underlying transaction and supporting document.

A good audit trail means:

You can start with a figure on a report (for example, “advertising expenses”) and drill down to the list of transactions that make it up.

For each transaction, you can see the date, supplier, amount, and VAT treatment where relevant.

You can open the attached invoice or receipt for that transaction and see evidence that supports it.

If a transaction was edited or reclassified, there is a record of when and why, either through the software’s history or your own notes.

Even if you are not required to use a particular system, adopting audit-trail thinking makes it far easier to answer questions and reduces the stress of preparing returns.

Common problem areas and how to keep cleaner records

Small businesses often get caught out not because they deliberately do anything wrong, but because their records are incomplete or inconsistent. Certain areas come up again and again.

Mixed personal and business spending

If you sometimes use the same bank account or card for personal and business spending, you must be disciplined about identifying which transactions belong to the business and which do not. Keep notes on borderline items. If you reimburse the business for personal purchases made from the business account, record the reimbursement clearly. The more mixed spending there is, the more important it becomes to keep clean explanations.

Cash takings and tips

Cash businesses need a routine for recording daily takings. Keep a daily takings log, reconcile it to cash banked, and keep till reports where possible. If staff handle cash, have a simple control process so that you can show how you arrived at the figures. For tips and service charges, keep records of how they are collected and distributed.

Refunds and chargebacks

Online selling often includes refunds, partial refunds, and chargebacks. Keep records that match the platform’s payout reports and make sure you record refunds in the correct period. Use credit notes or clear refund documentation so it’s obvious why income reduced.

Subscription sprawl

Software and online services can multiply quietly. Keep a list of active subscriptions and store invoices in a consistent place. This helps you prove the expense and also helps you identify costs you can cancel.

Home office and phone costs

Home working and phone usage are common mixed-use costs. Decide on a method to apportion costs and document it. Keep the bills and keep a short note explaining your calculation. Consistency year to year helps.

Record keeping for different types of small businesses

The basics apply to everyone, but some sectors have additional quirks. Thinking sector-by-sector can help you spot records you might otherwise miss.

Retail and hospitality

Retail and hospitality businesses often have high transaction volumes. Keep daily till summaries, end-of-day cashing-up sheets, card machine settlement reports, and supplier invoices. Stock records can be especially important, as can wastage records in food-related businesses.

Trades and construction

Trades businesses should keep job sheets, quotes, purchase records for materials, and mileage logs. If you work as a contractor or subcontractor, CIS documentation can be central. Photos, completion notes, and customer sign-offs can support invoices if there are later disputes.

Consulting and professional services

Service businesses often rely on time and project records. Keep contracts, statements of work, timesheets, and evidence of deliverables. If you bill retainers, keep records showing the period covered and how work was allocated across months.

E-commerce and digital products

If you sell online, you’ll need platform reports that separate gross sales, platform fees, shipping charges, refunds, and taxes withheld or collected. Keep records of payment processor charges and any third-party fulfilment invoices. For digital products, keep logs of sales and evidence of pricing and promotions.

What HMRC might ask for if they check your business

If HMRC ever asks questions about your business records, they are typically trying to understand whether your reported figures reflect reality. They may ask for specific documents like invoices, bank statements, and receipts, but they may also ask for explanations of how you operate: how you record cash sales, how you decide what is business versus personal, how you calculate mileage, and how you value stock.

A well-prepared business can respond by providing:

A clear transaction list for the period in question.

Supporting documents attached or filed in an organised way.

Reconciliations that show totals match bank accounts and reports.

Notes explaining any unusual transactions or one-off events.

The goal is not to overwhelm anyone with paperwork. It’s to provide a coherent story that ties the numbers to real transactions and documents.

A simple, practical record-keeping system you can implement

You do not need an elaborate system to keep compliant records. You need something consistent. The best system is one you will actually use every week.

Create a clear folder structure

Use a predictable structure by tax year and month. For example, a top-level folder for each tax year, with subfolders for sales, purchases, bank, payroll, VAT, and assets. Within each, organise by month. This makes retrieval fast and reduces the temptation to dump everything into one messy folder.

Use consistent file naming

Name files so that you can identify them without opening them. A common format is: YYYY-MM-DD Supplier Amount Description. For sales invoices, include the invoice number and customer name. Consistent naming helps when you search later.

Capture receipts immediately

Make it a habit to capture receipts when you get them. If you wait until the end of the month, some will be lost. Use a phone scan, forward digital receipts to a dedicated email address, or upload documents to your bookkeeping system as you go.

Reconcile bank accounts regularly

Bank reconciliation is the discipline that keeps your records honest. If your bookkeeping transactions match your bank statements, you’ll spot missing receipts, duplicate entries, and misclassifications quickly. Regular reconciliation also helps you maintain a strong audit trail.

Keep brief notes for anything unusual

A short note saved with a transaction can be the difference between an easy explanation and a stressful scramble. Examples include a personal element in a bill, a one-off refund, a large equipment purchase, or a payment that covers multiple invoices.

Back up your records

Use a reliable backup system. That might mean cloud storage plus a second backup location. The key is that you can recover your records if a device fails or an account is lost.

Work with your accountant proactively

If you have an accountant, ask them what format they prefer and what they commonly find missing. Aligning your record-keeping with their workflow can reduce your accounting costs and improve accuracy. Even if you do your own bookkeeping, a periodic review can help you correct issues before year end.

Checklist: the minimum set of records to keep

To make this practical, here is a streamlined checklist you can use as a starting point. Your business may need additional records depending on your circumstances, but this covers most small businesses.

Sales invoices and receipts, including credit notes and refunds.

Bank statements for all business-related accounts and card statements used for business.

Purchase invoices and receipts for business expenses, including petty cash records.

Accounting transaction list or bookkeeping reports showing categorised income and expenses.

VAT invoices, VAT account summaries, and copies of VAT returns if VAT registered.

Payroll records, payslips, RTI submissions, and pension records if you employ staff or pay salaries.

Asset purchase and disposal records, and capital allowance workings where relevant.

Stock records and year-end stock counts if you hold inventory.

Contracts and key correspondence that explain major transactions, grants, disputes, or unusual events.

Evidence and calculations for apportionments, such as home office claims, mixed-use bills, and mileage.

Final thoughts: aim for clarity, consistency, and completeness

Keeping records for HMRC does not have to be intimidating. Think of it as building a clear trail from your day-to-day trading to the totals you report. The best record-keeping approach is one that you can follow consistently: capture evidence as you go, keep documents organised, reconcile regularly, and document any judgment calls. If you do that, you’ll not only be ready to answer HMRC questions, you’ll also have better visibility over your business and stronger confidence in your numbers.

As your business grows, revisit your system. New taxes, new staff, new sales channels, and new software can change what you need to keep. Updating your record-keeping habits in step with growth is far easier than trying to reconstruct everything at year end. A small investment in good processes now can save a lot of time, money, and stress later.