Why your records matter more than you think

Every figure on your self assessment return is a claim about something that actually happened — a sale you made, an expense you paid, a dividend you received. Your records are the evidence behind those claims. HMRC generally has 12 months from the filing deadline to open an enquiry, and if a query lands on your doormat, the difference between a quick, calm reply and an expensive problem usually comes down to whether you kept the paperwork.

There is a legal duty here as well as a practical one. Sole traders, partners and directors need to keep adequate records, and failing to keep them can attract a penalty of up to £3,000, quite separate from any tax you owe. The good news is that the rules are straightforward once you know them, and a light monthly routine is usually enough to stay on the right side of them.

How long you need to keep self assessment records

For self assessment, the general rule is five years after the 31 January deadline that follows the end of the tax year. For the 2024/25 tax year, the filing deadline is 31 January 2026, so keep your records until at least 31 January 2031.

Two situations extend that period:

• If you filed your return late, or told HMRC about a chargeability to tax later than you should have, keep records longer — for five years from the date you actually sent the return or told HMRC.
• If you need to amend a return, you have 12 months from the filing deadline to do so, so it is worth keeping the supporting paperwork to hand for that whole window.

Other tax records follow their own clocks: VAT records for six years, corporation tax records for six years from the end of the accounting period, and PAYE records for three years after the end of the tax year they relate to. If you are registered for VAT, those six years will normally be the longest requirement you face.

What counts as a record

People often assume "records" means a shoebox of receipts. In practice it means anything that shows money came in or went out, and why. Useful records include:

• Sales invoices, till rolls, paying-in slips and card terminal statements.
• Purchase invoices, receipts and supplier statements.
• Bank and credit card statements, plus business account transaction listings.
• A diary or log of cash takings if you handle money directly from customers.
• Mileage logs for business journeys, with dates, destinations and purpose — the simplified rates are 45p per mile for the first 10,000 miles in a car and 25p thereafter.
• Dividend vouchers, interest statements, pension contribution records, CIS deduction statements and Gift Aid confirmations.
• Contracts, lease agreements and loan documents for anything with a tax consequence.

A bank statement alone rarely tells the full story. If a payment of £240 appears with no explanation, it is far harder to defend as a legitimate business cost than if it is backed by an invoice naming the supplier and the work done.

Going paperless without cutting corners

You do not have to keep paper. HMRC accepts digital copies, including scans and clear photographs, provided they are complete, readable and legible. If you keep an adequate digital copy, you can generally destroy the originals after your records have been checked, though many accountants suggest holding them for the full retention period simply as a safety net.

Where digital records often fall down is backup. A phone full of receipt photos is not much use if the phone is lost. Keep at least one copy off the device — cloud storage, an external drive, or both — and make sure you can actually find things again. Sensible file names (date, supplier, amount, what it was for) save hours when you or your accountant come to prepare the return.

A routine that takes minutes, not weekends

Most record-keeping pain comes from leaving everything until January. A short, regular habit solves it:

• Weekly: photograph and file receipts, and note any cash takings.
• Monthly: reconcile your bank account, download statements and check nothing is unexplained.
• Quarterly: review your income and expenses against last year so there are no surprises, and set money aside for tax.

Keeping business and personal spending in separate accounts makes all of this dramatically easier, even if you are a sole trader with modest turnover. A dedicated account turns a forensic exercise into a simple download.

When records go missing or you are running short

Records do get lost — a laptop dies, a box goes missing in a house move, a supplier disappears. If you cannot produce a record, do not invent one. Reconstruct what you can from bank statements, supplier duplicates, card statements and diary entries, and make a note of how you arrived at the figure. If you have to estimate something, be able to explain your reasoning and flag it to your accountant.

It is also worth remembering that careless errors carry penalties, and deliberate understatements carry much heavier ones. Honest, well-documented estimates are treated very differently from figures invented to reduce a bill. Keep the evidence, keep it accessible, and keep it for the required period — it is one of the cheapest forms of insurance a small business can have.