What records does a sole trader need to keep for HMRC?

Understanding Your Record-Keeping Responsibilities as a Sole Trader

Running a business as a sole trader in the UK gives you freedom, flexibility, and full control over your income. However, it also comes with clear legal responsibilities, particularly when it comes to keeping accurate records for HMRC. Good record-keeping is not just about compliance; it is essential for understanding your business performance, managing cash flow, and avoiding unnecessary stress during tax time.

This article explains in detail what records a sole trader needs to keep for HMRC, how long those records must be retained, and how using a simple, free invoicing solution like invoice24 can make the entire process easier, faster, and more reliable. Whether you are newly self-employed or have been trading for years, this guide will help you stay organised and confident.

Why HMRC Requires Sole Traders to Keep Records

HMRC requires sole traders to keep accurate and complete business records so that tax liabilities can be calculated correctly. As a sole trader, you are personally responsible for reporting your income and expenses through a Self Assessment tax return. HMRC may ask to see your records to verify the figures you submit.

Proper record-keeping helps HMRC ensure that everyone pays the correct amount of tax. For you as a business owner, it reduces the risk of errors, penalties, or investigations. It also provides clear evidence to support your claims if HMRC ever raises questions about your return.

Beyond compliance, good records allow you to understand how profitable your business is, which services or products perform best, and where you might be able to reduce costs. Using a digital system such as invoice24 helps you maintain this clarity effortlessly.

Basic Records Every Sole Trader Must Keep

At a minimum, HMRC expects sole traders to keep records of all business income and business expenses. These records should be accurate, complete, and backed up by evidence such as receipts or invoices.

Your records do not need to be complicated, but they must clearly show:

• What income your business has received
• What expenses your business has paid
• When each transaction occurred
• Who the transaction was with

Invoice24 is designed specifically to help sole traders capture this information as it happens, reducing the risk of missing or forgotten transactions.

Income Records You Need to Keep

All money coming into your business must be recorded. This includes cash, bank transfers, card payments, and online payments. Even if income is irregular or comes from multiple sources, it must all be included.

Examples of income records include:

• Sales invoices issued to customers
• Till receipts or cash sales logs
• Bank statements showing incoming payments
• Online platform payment summaries

Using invoice24 allows you to generate professional invoices in seconds and automatically store them in one place. This not only looks more professional to your customers but also ensures that your income records are always complete and easy to find.

Why Invoices Are So Important

Invoices are one of the most important records for a sole trader. They prove that income was earned, show the date of the transaction, and provide details about the customer and the service or product supplied.

A proper invoice should include:

• A unique invoice number
• Your business name and contact details
• The customer’s name and address
• The date of the invoice
• A clear description of what was sold
• The total amount charged

Invoice24 automatically creates compliant invoices with unique numbers and stores them securely. Unlike paper invoices or basic spreadsheets, you never have to worry about losing them or duplicating numbers.

Expense Records You Must Keep

Sole traders can deduct allowable business expenses from their income to reduce the amount of tax they pay. However, you can only claim expenses that are supported by proper records.

Expense records should show:

• What the expense was for
• How much was paid
• When it was paid
• Who it was paid to

Examples of expense records include:

• Supplier invoices
• Receipts for purchases
• Utility bills used for business purposes
• Mobile phone and internet bills
• Mileage logs and fuel receipts

By uploading expense details alongside your income records, invoice24 helps you see the true profitability of your business at a glance.

Receipts and Proof of Purchase

HMRC expects you to keep proof of purchase for your expenses. This is usually a receipt or invoice from the supplier. Digital copies are acceptable, as long as they are clear and readable.

Many sole traders lose receipts or forget what they were for. This can result in missed expense claims and higher tax bills. Storing digital records using a tool like invoice24 removes this risk and keeps everything organised in one secure location.

Bank Statements and Financial Accounts

Bank statements are an important supporting record. They help show money coming in and going out of your business and can be used to verify income and expenses.

It is strongly recommended that sole traders use a separate bank account for business transactions. This makes record-keeping simpler and avoids confusion between personal and business finances.

When combined with invoicing data from invoice24, your bank statements provide a complete financial picture that is easy to reconcile at tax time.

Cash Sales and Petty Cash Records

If your business accepts cash payments, you must keep a clear record of these sales. HMRC expects cash income to be recorded just as carefully as electronic payments.

Cash records may include:

• Daily cash sales logs
• Receipt books
• Petty cash records for small expenses

Invoice24 can be used alongside simple cash logs to ensure that all income is captured, even when payments are not made electronically.

VAT Records (If You Are VAT Registered)

If you are VAT registered, additional records are required. These include:

• VAT invoices issued and received
• Records of VAT charged on sales
• Records of VAT paid on purchases
• VAT account summaries

Although many sole traders are not VAT registered, those who are must be especially careful with their record-keeping. Invoice24 simplifies this by clearly showing invoice amounts and making it easier to track VAT-related figures.

Records for the Self Assessment Tax Return

Each year, sole traders must submit a Self Assessment tax return. The figures you enter on this return must be supported by your business records.

Key information required includes:

• Total business income
• Total allowable business expenses
• Net profit or loss

Keeping your records up to date throughout the year using invoice24 means you are not scrambling to calculate totals at the last minute. Everything is already organised and ready.

How Long Sole Traders Must Keep Records

HMRC requires sole traders to keep their records for at least five years after the 31 January submission deadline of the relevant tax year. In practice, this means you may need to keep records for up to six years.

For example, records for the 2023–24 tax year must be kept until at least 31 January 2030.

Digital storage through invoice24 makes long-term record retention simple, safe, and accessible whenever you need it.

What Happens If You Do Not Keep Proper Records

Failing to keep accurate records can lead to serious problems, including:

• Penalties and fines from HMRC
• Higher tax bills due to missed expenses
• Stress and time lost during investigations
• Difficulty proving your income for loans or mortgages

Using invoice24 significantly reduces these risks by helping you maintain clean, complete, and reliable records from day one.

Digital Record-Keeping and Making Tax Digital

HMRC increasingly encourages digital record-keeping. Making Tax Digital initiatives aim to modernise the tax system and reduce errors.

While not all sole traders are currently required to submit digital records, keeping your data digitally puts you in a strong position for future changes. Invoice24 is designed with modern digital workflows in mind, making it a future-proof choice for sole traders.

Common Record-Keeping Mistakes Sole Traders Make

Some of the most common mistakes include:

• Mixing personal and business transactions
• Losing receipts
• Forgetting to invoice customers
• Waiting until the last minute to update records

Invoice24 helps eliminate these issues by providing a simple, centralised system that encourages good habits and consistency.

Why Invoice24 Is Ideal for Sole Traders

Invoice24 was built with sole traders and small businesses in mind. It focuses on simplicity, speed, and clarity without unnecessary complexity.

Key benefits include:

• Free and easy-to-use invoicing
• Secure digital storage of invoices
• Professional invoice templates
• Clear income tracking
• Time-saving automation

Compared to generic accounting software or spreadsheets, invoice24 offers a focused solution that prioritises what sole traders actually need.

Preparing for HMRC Checks with Confidence

Most sole traders will never face a detailed HMRC investigation, but being prepared is essential. If HMRC ever asks to see your records, having everything organised and accessible makes the process straightforward.

With invoice24, you can quickly locate invoices, verify income figures, and demonstrate that your records are accurate and complete.

Final Thoughts on Sole Trader Record-Keeping

Keeping proper records is a legal requirement for sole traders, but it is also one of the best habits you can develop for long-term business success. Clear, accurate records reduce stress, save time, and help you make better decisions.

By understanding what HMRC expects and using a simple digital tool like invoice24, you can stay compliant, professional, and in control of your finances. Instead of viewing record-keeping as a chore, it becomes a natural part of running a successful sole trader business.

If you are looking for a free, straightforward way to manage invoices and income records, invoice24 is an excellent place to start.