Record Keeping for Expenses

Every pound you claim as a business expense reduces your taxable profit, which means HMRC expects you to prove it. Good record keeping is not bureaucratic box-ticking: it is what lets you claim everything you are entitled to, defend those claims if you are ever queried, and file accurate returns with confidence. Whether you run a side hustle or a growing limited company, the rules are broadly the same, and getting them right from day one saves a great deal of stress later.

This guide covers what records HMRC requires, how long to keep them, what counts as acceptable evidence, and how digital tools make the whole process almost effortless. It pairs naturally with our wider business expenses and deductions hub and the detail on allowable business expenses .

What records HMRC requires

You must keep records of all money coming in and going out of your business. For expenses specifically, that means a record of what you bought, when, how much it cost, and why it was for the business. The exact format is flexible, but the underlying evidence must be complete and accurate.

At a minimum, keep:

• Receipts, invoices and bills for everything you purchase
• Bank and credit card statements showing the payments
• A log of cash purchases where no card record exists
• Mileage logs for business journeys (see mileage and travel claims )
• Records supporting any apportioned costs, such as home office costs

Sole traders and partnerships keep these to support their Self Assessment return. Limited companies keep them to support both the Corporation Tax computation and the statutory accounts filed under UK GAAP, typically FRS 105 for a micro-entity or FRS 102 for a small company.

How long to keep records

The retention period depends on your business type. Keep the figures below as a baseline, and hold records longer if a return is late, under enquiry or amended.

If HMRC opens an enquiry, keep everything connected to it until the matter is fully resolved, even if that pushes you past the standard period. Records can be kept on paper or digitally, provided the information is legible, complete and readily retrievable.

Acceptable evidence and receipts

The gold standard is a VAT invoice or itemised receipt showing the supplier, date, description, amount and any VAT charged. A bank statement on its own is rarely enough, because it shows that money left your account but not what it bought or whether the purchase was genuinely business-related.

Strong evidence includes:

• Itemised supplier invoices and tills receipts
• Online order confirmations and emailed receipts
• Subscription and software billing statements
• Contracts and agreements for recurring services

Weak or unsupported evidence includes a lone card statement line, a handwritten note with no backup, or a vague description such as “sundries”. If a receipt is genuinely lost, make a contemporaneous note explaining the purchase; one or two of these is reasonable, but a pattern of missing receipts invites scrutiny.

Digital receipt capture

Paper receipts fade, tear and go missing, especially the thermal-paper variety. Digital receipt capture solves this by letting you photograph a receipt the moment you receive it. The image is stored, the key data is read automatically, and the original paper can be discarded.

HMRC accepts scanned and photographed copies as valid records, as long as the image is clear and all the information is preserved. The practical benefits are significant:

• Receipts are captured before they can be lost
• Supplier, date and amount are extracted for you
• Everything is searchable and backed up
• Year-end and Self Assessment become far quicker

This approach sits at the heart of modern digital record keeping and the broader move towards the e-invoicing and digital compliance hub .

Linking receipts to transactions

Capturing a receipt is only half the job. To be genuinely audit-ready, each receipt should be matched to the corresponding bank or card transaction so there is a clear, unbroken trail from the money leaving your account to the evidence behind it.

A good workflow looks like this:

1. The bank feed imports a transaction automatically.
2. You attach the captured receipt to that transaction.
3. The expense is coded to the correct account category, such as purchases and cost of sales in the chart of accounts.
4. The record is reconciled, confirming the figures agree.

When a receipt is linked to its transaction, anyone reviewing the books can move from the statement line to the original evidence in a single click. This is exactly the kind of trail HMRC looks for, and it removes the frantic year-end hunt for missing paperwork.

Records for VAT-registered businesses

If you are VAT-registered, the bar is higher. You must keep enough detail to support every figure on your VAT return, including the VAT you reclaim on purchases. To reclaim input VAT, you generally need a valid VAT invoice showing the supplier’s VAT number and the VAT charged.

Under Making Tax Digital for VAT, you must keep digital records and file using compatible software, with a digital link maintained between your records and your return. Manually retyping figures between systems breaks that link and is not compliant. For the full picture, see the Making Tax Digital and software hub and our guidance on keeping a VAT audit trail .

Key VAT record-keeping points:

• Keep VAT invoices for at least six years
• Record the VAT charged on sales and reclaimed on purchases
• Maintain digital links throughout your record chain
• Retain evidence for partial exemption or apportioned VAT

Penalties for poor records

Failing to keep adequate records can lead to penalties in its own right, separate from any tax you owe. More commonly, poor records cause trouble indirectly: without evidence, HMRC may disallow expense claims, recalculate your profit upwards and charge the additional tax, plus interest and penalties for an inaccurate return.

Penalties for inaccuracies are generally behaviour-based, meaning a genuine mistake with reasonable care is treated far more leniently than carelessness or deliberate error. Solid, well-organised records are your best defence: they demonstrate reasonable care and make it easy to substantiate every claim if questions arise.

Going paperless

Moving to a fully paperless system is the logical end point. Once receipts are captured digitally, linked to transactions and stored in compliant software, you no longer need to retain the paper at all. The result is a faster, cheaper and more reliable set of records.

To go paperless effectively:

• Capture every receipt at the point of purchase
• Use software that maintains digital links for Making Tax Digital
• Reconcile regularly so nothing is left unmatched
• Back up your data and confirm it is retained for the required period

Automating these steps removes most of the manual effort; our guide to automating your bookkeeping explains how. Done well, paperless record keeping means your books are always current and you are ready for HMRC, Companies House or your accountant at any moment.

Related

• Allowable business expenses
• Mileage and travel claims
• Digital record keeping
• Making Tax Digital and software hub
• Business expenses and deductions hub