Small Business Record Keeping

This Content Was Last Updated on March 10, 2024 by Jessica Garbett


Why Keep Records?

Keeping books and records – bookkeeping – is a requirement for anyone running a business, however large, and although rare, you can be penalised by HMRC for not doing so.

For tax you need to keep:

  • a record of income as its received
  • a record of expenses you incur

For your own use you may also want to track:

  • money you owe or are owed
  • trends in turnover and profitability
  • profitability


Bookkeeping for Tax

There are a number of options for keeping books:

  • A diary
  • An accounts book on paper
  • A spreadsheet – we can let you have a suitable template on request (note post Making Tax Digital spreadsheets need to be able to connect to HMRC with Bridging Software)
  • A computer package like Freeagent, Quickbooks, Sage or Xero (but these may be too complex for many sole traders)
  • Bespoke industry specific package, eg for retail, motor or construction industry – these will go a lot further than just accounting and offer comprehensive business management features.

The Making Tax Digital regime will mandate the use of some sort of electronic accounting system for many Sole Traders and Partnerships from April 2026 onward.  We are recommending FreeAgent to clients as an accounting system for MTD compliance, but we are “open platform” so we will endeavour to work with whatever system you choose to use.


Record Keeping – Common Problem Areas and Questions

  • Make sure income is recorded as its received, including cash and direct payments to your bank account.   We suggest recording all income at the time of receipt, even if it is a prepayment.
  • Make sure income is not double counted, eg cash income recorded and double counted as a bank deposit
  • If you use a personal bank account, you don’t need to record personal expenses, but if you use a business bank account you do – in which case its easier and simpler to make transfers to your private account on a regular basis for living costs and record these in your accounts rather than put individual personal transactions through your business bank account and have to record each one
  • Use a simple referencing system for receipts and vouchers – you could just start from “1” and work upwards, and if you receive a receipt late it doesn’t matter if the numbering is out of order
  • Make sure income and expense is marked as cash, debit card, cheque, credit card etc – it makes it easier to track where things have come from/gone to
  • If you use an accounts book or spreadsheet you can summarise and use a fresh page/sheet each month or quarter if you wish, or just run on for the year – personal preference.

For all but the smallest business a separate business bank account is a good idea, although not essential – rather than open a specific business account and be charged  for it on banks business tariffs, a second personal account designated for business is fine for a small self employment (but not for a company though – companies must have accounts in the company name).

If you have a business bank account, then segregating your accounts transactions between bank and cash is a good idea.

Similar considerations apply to credit cards  – designating one for business is a good idea.

If your business deals in a lot of cash, eg a retail or service business, then a good record of sales is important, as HMRC may pay a lot of attention to that during an enquiry.  For shops, cafes and similar, a till is almost essential, and for other businesses a proper invoicing system with copies kept is necessary.

Do you need to keep receipts on paper?  No.  A scanned copy is acceptable for tax, so long as its kept safely.  You could simply scan and save to your computer or a service like Dropbox, or there are receipt keeping apps that interface to software; many software packages let you tag receipts to transactions as well.