Running your own business gives you freedom and flexibility, but it also comes with responsibilities. Accurate record-keeping is one of the most important. As a sole trader, you’re legally required to keep certain records for HMRC, and the quality of those records can make a big difference to your tax bill, your cash flow, and your understanding of how well your business is performing.
At Hanley & Co. Accountants, this month’s blog looks at what records a sole trader should keep for HMRC. For more information, call us near Kendal on 01539 821869.
Why Record Keeping Matters to HMRC
HMRC relies on your records to ensure you are reporting the correct amount of income, and only claiming legitimate business expenses. If you ever face an audit, you will be expected to provide evidence.
Beyond compliance, having good records benefits you directly as it:
- Helps you understand your profits
- Makes tax returns less stressful
- Ensures you never miss allowable expenses
- Protects you if something goes wrong
HMRC requires records to be complete and accurate. Here is what you should be tracking:
Records of all Business Outcome
Any money your business earns needs to be properly recorded. This includes:
- Invoices issued to customers
- Sales receipts
- Bank statements
- Online sales reports
- Cash income records
Income records help HMRC verify your turnover and ensure your tax calculations are correct. Missing records can lead to HMRC estimating your income.
Records of Business Expenses
Your expenses reduce your taxable profit, so it makes sense to claim everything you’re entitled to. These expenses lower your taxable profit and your tax bill. However, you need proof. Keep records of:
- Supplier invoices (e.g. stock, materials, tools)
- Receipts for every day business purchases
- Travel & mileage logs
- Rent for office space of business premises
- Software subscription invoices
HMRC does accept digital copies, just make sure they are legible.
Records of Income
You must also keep records of all money that comes into your business, so each sale and payment is recorded and your income tax liability and National Insurance calculations can be accurately calculated with the supporting documents. Keep records of:
- Sales invoices
- Receipts
- Bank statements
- Payment confirmations
- Other income
Switching to Making Tax Digital
Making Tax Digital is the Government’s ongoing programme to digitise and modernise the UK tax system. Coming into effect from April 2026, Making Tax Digital will be mandatory for sole traders with an annual income over £50,000. By April 2028, it will be £20,000.
This means that paper record keeping and tax filing can no longer be used, and accounting software must be. To ensure you are compliant, sole traders must use HMRC-approved software to maintain digital records and electronically file statements and tax updates.
Please Note: As a sole trader, you must keep copies of your records for a minimum of 5 years after January 31st after the relevant tax year end.
Contact Hanley & Co. Accountants
For advice, contact Hanley & Co. Accountants, near Kendal. Serving across Cumbria, call us on 01539 821869. Alternatively, send us a message via our contact form and we will be in touch.
