Bookkeeping for Small Businesses UK: Records, Rules and Year-End

Bookkeeping is the day-to-day record of what comes in and what goes out. Accounting is what happens at the year end, when those records become accounts and tax returns. Keep the first tidy and the second is quicker and cheaper; let it slide and everything from a VAT return to a mortgage application gets harder.

What records does a small business need to keep?

Enough to support every figure on your tax return:

• all sales and other income, with copies of the invoices you issue
• all business costs, with receipts and bills
• bank statements for every account the business uses
• VAT records if you are registered, and payroll records if you employ anyone
• money you put into the business or take out for yourself

A limited company must also keep the accounting records that company law requires, including what it owns and owes, and its statutory registers. Records can be kept on paper or digitally, but anyone within Making Tax Digital must keep them in compatible software.

How long do you have to keep business records?

The periods depend on the structure, and they run from different dates:

• Sole traders: at least 5 years after the 31 January online filing deadline for the tax year. Records for 2026-27, whose return is due by 31 January after the year ends, are kept for 5 years beyond that date.
• Limited companies: 6 years from the end of the company financial year the records relate to, and longer where a transaction spans more than one accounting period or an asset is expected to last more than 6 years. Company law sets a shorter minimum for private companies (3 years), so HMRC's 6 years is the one that matters in practice.
• VAT records: at least 6 years.

Cash basis or traditional accounting: which applies?

Since the 2024-25 tax year, the cash basis has been the default for sole traders and for partnerships whose partners are all individuals. You record income when you are paid and costs when you pay them. The old turnover limits (£150,000 to join, £300,000 to leave) have gone, so a business of any size can use it. Traditional accruals accounting, which matches income and costs to the period they belong to, is still available by opting out on your tax return. Limited companies and LLPs cannot use the cash basis.

Two shortcuts help the smallest businesses. The trading allowance makes the first £1,000 of gross trading income each tax year tax-free. Above that, you can deduct £1,000 instead of your actual expenses, but not both. It is not available in a year in which you have trading income from your employer, or from a company or partnership you are connected with. The government has also announced plans to raise the point at which trading income must go on a tax return to £3,000 gross, with a simpler online service for income between £1,000 and £3,000; that change is not yet in force and does not alter the £1,000 tax-free amount.

Simplified expenses are flat rates that sole traders, and partnerships with no company as a partner, can use instead of working out exact costs: 45p a mile for the first 10,000 business miles in a car or van and 25p after that; £10, £18 or £26 a month for working from home for 25 to 50, 51 to 100, or 101 or more hours; and, where you live at your business premises (a guesthouse, say), a flat deduction for private use of £350, £500 or £650 a month for one, two, or three or more people. Companies cannot use them.

Do you need an accountant or just bookkeeping software?

Software does the bookkeeping: bank feeds, invoices, receipt capture, VAT returns and Making Tax Digital submissions. For many, it is no longer optional. Since 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send HMRC quarterly updates, and the threshold falls to £30,000 in April 2027 and £20,000 in April 2028.

An accountant turns the records into year-end accounts and tax returns, deals with HMRC for you, and advises on questions software cannot judge, such as how to take money out of a company. The title is worth checking: anyone can call themselves an accountant in the UK, while a chartered accountant is a member of a professional body with exams and rules. CoreFi reads your bank accounts and lets you tag business transactions, which helps keep the records complete between year ends.

What happens at the year end?

For a sole trader, the tax year ends on 5 April and profits are taxed on a tax-year basis (an accounting date from 31 March to 4 April is treated as 5 April). The Self Assessment return is due by 31 January online or 31 October on paper. Tax is due by 31 January, with payments on account on 31 January and 31 July where they apply.

A limited company works to its own financial year. Accounts go to Companies House within 9 months of the year end (normally 21 months from incorporation for the first accounts), corporation tax is due 9 months and 1 day after the end of the accounting period, and the company tax return is due within 12 months. A confirmation statement is filed at least once a year.

The right setup depends on the size and structure of the business and the time you have, and an accountant can advise on your circumstances.