How Long Must You Keep Business Records? HMRC Rules for Sole Traders

The basic rule: 5 years from the filing deadline

For UK sole traders, the basic record-keeping rule is simple: you must keep your business records for at least 5 years after the 31 January filing deadline for the relevant tax year.

For the 2025/26 tax return (filed by 31 January 2027), you must keep records until at least 31 January 2032.

Why 5 years and not less?

HMRC can open an enquiry into your Self Assessment tax return within 12 months of the filing deadline — for routine checks. But they can go back further:

• 4 years after the end of the tax year for mistakes made without carelessness
• 6 years after the end of the tax year for mistakes made carelessly
• 20 years (or indefinitely) if HMRC suspects fraud or deliberate tax evasion

The 5-year rule protects you against the most common enquiry scenarios. Keeping records for 6 years is even safer.

What records you must keep

HMRC requires you to keep records sufficient to allow them to verify the figures on your tax return. In practice this means:

Income records:

• Sales invoices or receipts issued
• Bank statements showing income received
• Cash sales records
• Any contracts or agreements for services provided

Expense records:

• Receipts, invoices, or other proof of purchase for every business expense claimed
• Bank statements showing payments made
• Mileage logs (date, purpose, start/end, miles) for vehicle expenses
• Records of the proportion of mixed-use expenses (phone, internet, home office) attributable to business

Bank records:

• 12 months of business bank statements for each tax year
• Credit card statements for business-use cards

PAYE records (if you have employees):

• Payroll records, P60s, P45s
• Employer NIC records

Digital records count

HMRC accepts digital records — scanned receipts, photos of invoices, PDF bank statements, and records in cloud accounting software all count. You do not need to keep paper originals as long as the digital copy is accurate and accessible.

Most cloud accounting platforms (Xero, QuickBooks) store your records securely and allow you to attach receipt images directly to transactions. This is both best practice and the MTD-compliant approach.

What happens if you cannot produce records

If HMRC opens an enquiry and you cannot produce the records to support your return, they can:

• Reject your expense claims and raise a revised tax assessment
• Issue penalties for failure to keep adequate records (up to £3,000 per year)
• Estimate your income and issue a "best of judgement" assessment

The burden of proof is on you as the taxpayer. Without records, you cannot prove your expense claims are legitimate.

A practical filing system for sole traders

The simplest approach is a digital system organised by tax year:

• Create a folder for each tax year (e.g., "2025-26 Tax Year")
• Inside: subfolders for Income, Expenses (by category), Bank Statements, Invoices, and Contracts
• Use Xero or QuickBooks to categorise and store transaction records
• Photograph receipts immediately (the Xero app and Hubdoc do this automatically)

At year end, export your Profit and Loss from your software, export your bank statements, and ensure every material expense has a receipt attached in the software. This takes 30 minutes of organisation and gives you complete protection.

Records for MTD ITSA

Under MTD for Income Tax (applying from April 2026 for those above £50,000 turnover), your digital records must be maintained throughout the year and submitted quarterly. The good news: if you are using cloud accounting software properly, you already have compliant records as a by-product of your regular bookkeeping.