You start a business to sell, build, create, not to drown in spreadsheets and filing. Yet if you are in the UK, there is one non‑negotiable part of running a business: keeping proper records.

If you feel unsure what you actually must keep to stay legal, you are not alone. Many UK founders only find out the rules when an HMRC letter lands or a Companies House deadline is about to hit.

This guide walks you through the legal minimums for accounting for UK businesses, in plain English. It covers both sole traders and limited companies, shows you what to keep, how long to keep it, and what can happen if records are missing. The goal is simple: help you avoid fines, stress, and last‑minute panic at year end.

Good records do more than tick a legal box. They help you pay less tax legally, plan cash flow, spot problems early, and make better decisions. If you decide you do not want to handle this alone, a founder‑focused service like Figures can do the heavy lifting and keep you compliant in the background.

Understanding your legal duties: how UK record keeping rules work

Record keeping in the UK is not optional. HMRC can check your tax returns at any time and expect you to show how you arrived at the figures. If your records are poor, HMRC can estimate your profits and charge penalties, as explained in their own record keeping guidance.

If you run a limited company, Companies House also expects accurate accounts and confirmation statements. Banks, landlords, and investors may ask for accounts and reports before they lend you money or sign a contract.

The rules are not identical for every business, but the core idea is the same: you must be able to show:

• what money came in
• what money went out
• what profit you made
• what tax you owe

You can keep records in digital form, on paper, or a mix of both. They just need to be readable, complete, and backed up. A simple rule of thumb helps: if it affects money in or out of your business, keep a record of it.

Sole trader vs limited company: does your business type change what you keep?

As a sole trader, you and your business are the same legal person. You report your profit on your Self Assessment tax return. Your focus is on clear records of income and expenses that support that return.

With a limited company, the company is a separate legal person. The money in the company bank account is not your money personally. You must keep formal accounting records and report to both HMRC (for Corporation Tax, PAYE, VAT) and Companies House (for accounts and confirmation statements). The rules are stricter and there are more moving parts.

Picture this:

• Freelance designer (sole trader): You keep records of client invoices, software subscriptions, laptop costs, and mileage. At year end, you or your accountant turn this into a profit figure for Self Assessment.
• Small creative agency (limited company): You do all of the above, plus keep records of staff payroll, director pay and dividends, company assets, and shareholder details, so your accountant can prepare statutory accounts and company tax returns.

How accounting for UK businesses ties into record keeping

Accounting for UK businesses does not start at year end. It starts every time you send an invoice, take a card payment, buy stock, or run payroll.

Each of these tasks creates a record: an invoice, a receipt, a bank payment, a payslip, a VAT entry. When you keep those records clean and up to date, you make life much easier for your future self and for your accountant.

Good daily records mean:

• faster, cheaper year end accounts
• fewer errors in VAT returns and tax returns
• lower risk of HMRC queries
• better cash flow insight

Services like Figures plug directly into your bank and tools, so those daily records flow into one clean set of books instead of a pile of random PDFs and emails.

Core financial records every UK small business must keep

Almost every UK business, from market stall to SaaS startup, needs the same core records. These feed into your accounts and tax returns and are the first things HMRC will expect to see. A quick overview of these essentials is also covered in guides like this record keeping summary for small businesses.

Sales and income records: proving every pound you earn

You need a clear record of all income, not just what hits your bank. That usually includes:

• sales invoices you issue
• cash register or till reports
• online sales reports from Shopify, Stripe, PayPal, Etsy, Amazon, etc.
• rental income statements if you rent out property through the business
• bank statements showing customer payments

HMRC wants to see where the income figures on your tax return came from. If you do a small cash job for a neighbour, it still counts and should be recorded.

Missing or patchy sales records can look like under‑reported income, even if you did not mean to hide anything.

Expense and purchase records: backing up every claim you make

For every expense you claim against tax, you should keep the document that proves it. That usually means:

• supplier invoices
• till receipts
• mileage logs for business trips
• home office calculations
• subscription and software invoices
• phone and internet bills
• bank and card statements

Keep the original documents, not just a spreadsheet total. If HMRC open a check, they can ask to see proof that a cost was “wholly and exclusively” for business.

Tidy expense records help you:

• claim the tax relief you are allowed
• avoid missing claims
• avoid claiming personal costs by mistake

Bank, card, and cash records: matching money in and out

You should keep:

• business bank statements
• business credit card statements
• loan or overdraft statements
• petty cash logs if you handle cash

These records must tie back to your invoices and receipts. When money goes in or out, there should be a matching document.

Even if you are a sole trader, it is smart to keep a separate business bank account. It makes accounting clearer, protects you in an HMRC enquiry, and saves hours trying to work out which Tesco shop was for home and which was for the business.

Asset, loan, and debt records: what your business owns and owes

You also need records for:

• assets such as laptops, machinery, vans, and equipment
• finance or hire purchase agreements
• business loans or overdrafts
• director loans to or from the company
• money you owe suppliers (creditors)
• money customers owe you (debtors)

These records let your accountant claim capital allowances, calculate interest deductions, and show a true picture of your business health on your accounts.

Extra records limited companies must legally keep

If you run a limited company, you have extra legal duties under company law. The government’s own guide to company and accounting records sets out these responsibilities.

Formal accounting records for companies: what must be included

Your company must keep records that show:

• all money received and spent by the company
• details of assets owned
• stock at year end if you hold it
• debts owed to the company
• debts the company owes other people
• who the company has paid, and why

These records are used to prepare your statutory accounts and Corporation Tax return. Poor records can lead to wrong tax figures, late filing, and penalties from HMRC and Companies House.

Companies House records: accounts, confirmation statements, and registers

On top of day‑to‑day books, you must keep copies of:

• annual accounts filed at Companies House
• confirmation statements
• shareholder resolutions and share certificates

You also need statutory registers, such as the register of shareholders and people with significant control (PSC). A PSC is someone who owns or controls more than 25 percent of the company’s shares or voting rights.

Companies House explains the lifecycle of accounts and filings in more detail in its guide on preparing and filing company accounts.

Directors are personally responsible for keeping these records complete and up to date.

Director and shareholder records: paying and funding the company correctly

You must keep clear records of:

• director salaries
• dividends paid to shareholders
• director expenses and reimbursements
• any money you lend to the company
• any money you borrow from the company

These entries sit in your director loan account. Messy records here are a common reason HMRC asks questions, because they affect both your personal tax and the company’s tax.

VAT, payroll, and tax records you must keep for HMRC

On top of daily bookkeeping, some records relate directly to HMRC schemes such as VAT and PAYE. This is where many small businesses slip up.

VAT records: invoices, Making Tax Digital software, and 6‑year rules

If your business is VAT registered, you must keep:

• VAT invoices you issue and receive
• a VAT account (summary of VAT you charge and pay)
• evidence for any special scheme you use, such as flat rate or margin schemes
• copies of VAT returns

Most VAT records must be kept for 6 years. HMRC also expects digital VAT records using Making Tax Digital compatible software, as explained in its Making Tax Digital for VAT collection and further detail from bodies like the ATT on MTD for VAT.

In a VAT check, HMRC might ask to see, for example, the invoice behind a large input VAT claim, or proof that you applied the correct rate on a complex sale.

Payroll and PAYE records: what to keep if you have staff or pay yourself a salary

If you employ staff or pay yourself a salary through PAYE, you must keep payroll records that show:

• employee details and contracts
• right to work checks
• gross pay, tax, and National Insurance deductions
• pension contributions
• payslips and summaries
• RTI (Real Time Information) submissions
• P45, P60, and P11D forms where used

HMRC says you must keep PAYE records for at least 3 years after the end of the tax year they relate to, and may check them to confirm you have reported pay correctly, as set out in its guide on keeping PAYE and payroll records.

If you are the only employee but take a director’s salary, these rules still apply.

Tax return and correspondence records: Self Assessment and Corporation Tax

You should keep copies of:

• Self Assessment tax returns
• Corporation Tax returns (CT600)
• VAT returns
• payroll filings
• HMRC letters and statements
• payment confirmations and time‑stamped screenshots for online payments

Sole traders must usually keep records for at least 5 years after the 31 January deadline following the tax year. Companies usually keep records for at least 6 years from the end of the accounting period.

If HMRC open an enquiry, they can ask to see the records behind any figure on any return.

How long you must keep business records in the UK (and what happens if you do not)

You do not have to keep your records for ever, but you do need to keep them long enough. HMRC confirms the basic rules for the self‑employed in its guide on how long to keep your records.

Record retention periods for sole traders and limited companies

Here is a quick summary of typical minimum retention periods:

Example: Your sole trader business has income in the 2024/25 tax year. The filing deadline is 31 January 2026. You must keep the records that support that return until at least 31 January 2031.

Penalties, HMRC checks, and what to do if your records are missing

If you do not keep proper records, HMRC can:

• estimate your income and tax bill
• charge penalties of up to £3,000 per failure
• add interest on unpaid tax
• treat poor records as careless or deliberate behaviour, which increases penalties

Companies House can fine your company for late accounts, and in extreme cases directors can be disqualified for serious failures to meet legal duties.

If records are lost because of fire, theft, or a system crash, do not panic:

1. Tell HMRC what has happened.
2. Rebuild records from bank statements, email trails, supplier portals, and customer systems.
3. Use reasonable estimates where proof has gone but make your method clear.
4. Put a better system in place so it is less likely to happen again.

HMRC cares about whether you took reasonable care. A simple, reliable record system shows that you did.

Simple ways to keep compliant records without drowning in admin

You do not need to love spreadsheets to stay compliant. You just need a simple system you actually use.

Digital bookkeeping tools and simple filing systems that work

A practical setup for most small UK businesses looks like this:

• Cloud accounting software connected to your bank feed, so transactions import automatically.
• A receipt‑scanning app on your phone, so you snap receipts as you get them.
• A folder structure for documents, by year and type, for example “2024‑25 / VAT”, “2024‑25 / Payroll”, “2024‑25 / Contracts”.
• Regular backups of your data, either within your software or to secure cloud storage.

These habits give you clean, real‑time numbers and remove much of the manual effort from accounting for UK businesses. You do not need to be a tech expert, you just need a routine you stick to.

When to call in an accountant or all‑in‑one service like Figures

There comes a point where doing everything yourself stops making sense. Signs you should bring in help:

• you miss deadlines or file at the last minute
• your books are always a few months behind
• you feel anxious every time HMRC is mentioned
• you are growing, hiring staff, or registering for VAT
• you want better numbers to support decisions, not just a tax bill

An all‑in‑one service like Figures can handle bookkeeping, VAT, payroll, statutory accounts, Corporation Tax, and Self Assessment in one place. You get simple, clear summaries instead of raw data and jargon, and you know HMRC and Companies House duties are covered.

Think of it as an investment in focus. You spend your time on sales, product, and customers, while someone else keeps the record‑keeping engine running in the background.

Conclusion

Keeping the right records is a legal duty for every UK business, but it does not have to be painful. When you understand the main buckets of records income, expenses, assets, VAT, payroll, and company records you give yourself control instead of waiting for a brown envelope to set the agenda.

Good accounting for UK businesses always starts with good records. They cut tax stress, support better decisions, and protect you if HMRC or Companies House ever take a closer look.

Take a few minutes now to review your current system. Where are the gaps? What would happen if HMRC asked a question tomorrow? Tighten up the basics, pick tools that make life easier, and if you want friendly, jargon‑free support, consider booking a call or starting a trial with Figures. Your future self will be very glad you did.