What records do I need to keep as a sole trader?

It is half past ten on a Sunday in late January, and somewhere in the country a sole trader is staring at a carrier bag full of receipts. Some of the receipts have faded to the point of being decorative. Some of them are for things they cannot remember buying. The deadline is in five days. They know, abstractly, that this is not the way to do it.

If you have ever been that person, this post is the antidote. The aim is not to scare you about HMRC. It is to set out, calmly and from the source material, what records HMRC actually wants you to keep, what counts as a record in the eyes of the law, how long to keep them, and what is going to change in April 2026 for some sole traders. By the end you should know enough to design a record-keeping habit that takes about fifteen minutes a week and makes the January scramble unnecessary.

Two things HMRC wants. That is it.

The whole regime, stripped of jargon, is this: HMRC wants complete records of money in and money out, preserved long enough that they can check them.

That is not a marketing summary. It is the substance of section 12B of the Taxes Management Act 1970, the statute that governs record-keeping for anyone filing a Self Assessment return. It says, in subsection (3)(a), that a person carrying on a trade must keep records of "all amounts received and expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place".

"Amounts received and expended" is the money. "The matters in respect of which" is what those amounts were for. Both halves matter. A bank statement showing £180 leaving your account on a Tuesday is not, on its own, a record of a business expense. It is a record of money moving. The "matter in respect of which" — the thing you bought, the reason it was for your trade — has to be there too.

Most sole traders who get into trouble at the end of January have plenty of the first half and very little of the second. They have bank statements going back years. They cannot tell you what half the entries were for.

What proves money came in

Income records are usually the easier half. The list is short and most of it generates itself if you are running an even slightly modern business.

You need invoices for everything you sold. If you use Stripe or PayPal or a similar processor, the platform keeps a record of each transaction; download the statements monthly. If you take card payments through a Square or Sumup terminal, the same applies. If you sell on a marketplace — Etsy, eBay, Vinted, Airbnb, Uber — the platform keeps a transaction log, and from January 2024 the platforms are required to report sellers' earnings directly to HMRC under the OECD digital platform reporting rules. That is worth knowing because it means HMRC's view of your platform income is now independent of your own records.

You need bank credits for any payment received directly into your account, with a note of who it was from and what it was for. You need paying-in slip copies if you bank cash. And if you take cash and do not bank all of it, you need a daily till total or cash takings record reconciled against any cash you do bank, plus the cash physically held at year end.

That last one — the cash reconciliation — is the bit HMRC is most likely to query in cash-heavy trades. The HMRC Business Profits Toolkit tells officers to "ensure that all business income including cash sales is appropriately recorded. A cash reconciliation can help confirm all cash received and expended has been properly accounted for and that the balance equates to cash physically held at the year end."

If you use the cash basis (which from 6 April 2024 is the default for most sole traders, by virtue of changes made by Finance (No. 2) Act 2023 to Chapter 3A of Part 2 ITTOIA 2005), you record income on the date you actually received the money, not the date you invoiced. So an invoice raised on 15 March that pays on 30 April is income for the next tax year, not the one in which you sent it. If you have positively elected the accruals basis, the invoice date is what counts.

What proves money went out for the business

Expense records are where the real work happens, and where most reconstructions fall apart.

For each business expense you need three things. What you spent. When you spent it. And — the part that is easy to forget — why it was for the trade. The "why" comes from section 34 of the Income Tax (Trading and Other Income) Act 2005, which says no deduction is allowed for expenses "not incurred wholly and exclusively for the purposes of the trade". A receipt without context does not pass that test on its own. A receipt with a one-line note of what it was for usually does.

The records that satisfy this in practice are receipts, supplier invoices, bank and card statements (as supporting evidence, not as the primary record), and any contracts or written agreements with suppliers. Photographs of paper receipts are fine — more on why in a moment.

A few specific cases that trip people up:

Mileage. If you claim vehicle expenses by the simplified-expenses method, the rate is 45p per mile for the first 10,000 business miles in a car or van, 25p thereafter, plus 24p for motorcycles and 20p for cycles (gov.uk: simplified expenses for vehicles). The record HMRC wants is a mileage log: date, journey, business miles, and a brief note of the purpose. Once you choose the simplified method for a vehicle, you have to stick with it for that vehicle. The actual-cost method requires you to keep fuel receipts and apportion all running costs by business-use percentage; heavier records, sometimes a more generous result.

Working from home. Under simplified expenses, if you work from home for at least 25 hours a month you can claim a flat rate: £10 per month for 25 to 50 hours, £18 per month for 51 to 100 hours, £26 per month for 101 hours or more (gov.uk: simplified expenses for working from home). It covers heat, light and power; not phone or internet, which are claimed separately. The record is a monthly note of hours worked at home. If you go down the actual-cost route instead — apportioning utilities, council tax, rent or mortgage interest, insurance — keep the bills and your apportionment workings. (One thing to flag: the "£6 a week" figure that floats around online is the rate for limited company directors claiming reimbursement from their own company, not the rate for sole traders. Several major guides conflate the two.)

Mixed-use expenses. Section 34(2) ITTOIA 2005 allows you to deduct "any identifiable part or identifiable proportion" of an expense incurred wholly and exclusively for trade. So a phone bill split 70/30 business/personal can give a 70% deduction, provided you can show the working. The record is the bill plus the apportionment.

What actually counts as a record

This is the section of the post that most competitor pieces skip, and it is where the most useful clarity lives.

A "record", in the sense the law uses the word, is broader than most people assume. Section 12B(4) of TMA 1970 says the duty to preserve records "may be discharged (a) by preserving them in any form and by any means, or (b) by preserving the information contained in them in any form and by any means". That second clause is the one that matters. It is the statutory basis for the practical position that you do not need to keep the original paper. You need the information.

So a phone photo of a coffee receipt, stored in an album you can find again, satisfies the duty in respect of that receipt. You can recycle the paper. The law does not care what medium the information lives in, as long as the information is there and you can produce it on request.

There are a few narrow exceptions in section 12B(4A) for documents that show tax has already been deducted at source — for example, a CIS payment and deduction statement, or certain tax statements under the Income Tax Act 2007 and Corporation Tax Act 2010 — where the original document is part of the entitlement to the deduction. For everything else, the information is the record.

The other thing the law makes clear is that a record must actually exist outside your head. In Spring Capital Ltd v HMRC [2016] UKFTT 232 (TC), the First-tier Tribunal said the legislation "was requiring the information to be in a medium that is reasonably permanent and accessible, and not merely in someone's head. And that is the meaning of 'record'." Memory is not a record. Neither is "I'm sure I've got it somewhere". A spreadsheet is a record. A folder of phone photos with sensible filenames is a record. An accounting app is a record. A shoebox of receipts is a record (though a fragile one).

The duty also runs forwards as well as backwards. Section 12B TMA 1970 requires you to keep records that enable a correct return, which means failing to create them in the first place breaches the duty just as destruction does — HMRC's Compliance Handbook (CH14550) treats both equivalently. You cannot reconstruct your way out of the duty.

How long to keep them

Five years and a bit, in plain English. The exact rule sits in section 12B(2)(a): records for a tax year must be preserved until "the fifth anniversary of the 31st January next following the year of assessment".

Worked example. Your 2024/25 tax return is due by 31 January 2026. The "31 January next following" the 2024/25 tax year is 31 January 2026. The fifth anniversary of that date is 31 January 2031. So records relating to 2024/25 must be kept until at least 31 January 2031.

A few wrinkles worth knowing:

• If HMRC opens an enquiry, you must keep the records until the enquiry is closed, even if that takes you past the five-year mark (section 12B(1)(b)(i)).
• If you file your return late, you must keep the records for at least 15 months from the date you actually submitted, on top of the basic period (gov.uk: how long to keep your records).
• The 22-month rule that some guides mention applies only to individuals not in business — employees, pensioners, people with savings income only. It is the rule in section 12B(2)(b). Sole traders are in the (a) category and get the longer period.

There is also a discovery regime sitting behind the basic five years. Under section 34 of TMA 1970, HMRC can make an assessment up to four years after the end of the tax year. That extends to six years for losses brought about carelessly (section 36(1)) and twenty years for losses brought about deliberately (section 36(1A)). In practice that means very poor or deliberately misleading records can give HMRC a rummaging window of two decades. It does not mean every sole trader has to keep records for twenty years, only that the carelessness and deliberateness thresholds matter.

What HMRC accepts: paper, spreadsheet, digital — and what shifts from April 2026

Today, HMRC's position on format is genuinely flexible. Their published customer guidance puts it as plainly as anything else they write: "There are no rules on how you must keep records. You can keep them on paper, digitally or as part of a software program (like book-keeping software)." (gov.uk: keeping your pay and tax records) The only requirement is that the records be "accurate, complete and readable".

So a notebook works. A spreadsheet works. A folder of phone photos with sensible names works. An accounting app works. The reason most people end up using software of some kind is not that HMRC requires it but that the alternatives get unwieldy quickly. Receipts fade. Notebooks get lost. Spreadsheets are fine until you have to add up a year of them at the deadline.

That changes for some sole traders from 6 April 2026.

From that date, Making Tax Digital for Income Tax (MTD ITSA) becomes mandatory for sole traders and landlords whose qualifying income for the previous tax year exceeded £50,000. The threshold drops to £30,000 from 6 April 2027 and £20,000 from 6 April 2028 (HMRC: Making Tax Digital for Income Tax for sole traders and landlords).

Three things to know about that.

First, "qualifying income" means gross income — turnover, before expenses — from self-employment and UK and foreign property combined. Not profit. So a freelancer with £55,000 of invoiced fees and £20,000 of expenses has qualifying income of £55,000 and is in scope from April 2026, regardless of what their profit looks like.

Second, the digital records have to capture each transaction individually. Under the Income Tax (Digital Obligations) Regulations 2026, regulation 15(2) requires you to keep records of each item of income and expenditure with the amount and the date it was received or incurred, plus the category. Categories follow the existing Self Assessment self-employment pages. Summaries do not satisfy the rule; individual transactions do. You do not, however, have to scan or store every receipt digitally to comply with MTD; the receipt itself can stay on paper if you prefer, as long as the transaction is in the digital record.

Third, spreadsheets are still allowed, but only when joined to bridging software that can talk to HMRC's API. A standalone spreadsheet on your laptop will not satisfy MTD. The "digital links" rule means that once a record is in your software and has been sent to HMRC in a quarterly update, it cannot be moved manually between products by copy and paste or retyping; the link between systems has to be electronic (gov.uk: create digital records for MTD for Income Tax).

There is one small mercy in the rollout. HMRC has confirmed that for the first year — 2026/27, for those mandated from April 2026 — they will not apply penalty points for late quarterly updates. Penalties for late tax returns and late payment still apply (gov.uk: sign up for Making Tax Digital for Income Tax).

If your qualifying income is below the threshold, none of this is yet mandatory. Paper, spreadsheets and your existing routine remain perfectly acceptable. Voluntary sign-up is open, though, and many people find that the discipline of quarterly digital records is easier than the once-a-year scramble even before they have to do it.

A realistic week, two ways

The same sole trader, two different approaches.

The good week. Friday afternoon, fifteen minutes. They open their phone, photograph the four receipts that have collected in their wallet, and dictate a one-line note for each ("client lunch, Tom, project Y"). They open their banking app, scroll through the week's transactions, and tap a category onto each one. They check that any invoices issued that week have been logged with the right date. They glance at the running total of expected tax for the year, see that it is roughly what they expected, and close the laptop. Total time: under fifteen minutes. Total stress: zero.

By the end of the year they have fifty-two of these weeks behind them. The tax return takes an evening, not a fortnight. Their accountant — if they have one — bills less because there is nothing to reconstruct. If HMRC asks a question, they can answer it the same day.

The bad week. No week, in fact. Receipts go in a wallet, then into a drawer, then into a carrier bag. The bank app is opened only when something needs paying. Invoices are sent from a laptop and tracked in memory.

By 28 January the carrier bag has produced eleven months of receipts, four of which are now too faded to read. The bank statements show £4,200 of card spend that needs categorising and they cannot remember what half of it was. They cannot find the Stripe annual statement and Stripe's password reset is going to a phone number they no longer use. The accountant — newly engaged, expensively — sends increasingly polite emails asking for things that no longer exist.

The cost of the bad week is not just the deadline panic. It is the expenses they will not be able to claim because the evidence has gone, the higher accountant's bill, the inaccuracy risk if they guess wrong, and the slightly elevated chance of an enquiry because the figures look rough on submission. Under Schedule 24 of the Finance Act 2007, an inaccurate return that is the result of carelessness can attract a penalty of up to 30% of the tax that should have been paid; a deliberate inaccuracy, up to 70%; deliberate and concealed, up to 100%. Those percentages are usually larger than the £3,000 cap on the record-keeping penalty itself, which is why HMRC's revenue from poor records mostly comes through the tax-geared route rather than the record-keeping fine.

Fifteen minutes a Friday is not a marketing line. It is the difference between two genuinely different experiences of being self-employed.

Frequently asked questions

How long do I need to keep my records as a sole trader?

At least five years after the 31 January submission deadline for the tax year. For 2024/25, that means until 31 January 2031. The rule comes from TMA 1970 section 12B(2)(a). Keep them longer if HMRC has opened an enquiry, and at least 15 months from the date you submitted if you filed late.

Can I throw away the paper receipt once I have taken a photo?

Yes, in nearly every case. Section 12B(4) of TMA 1970 lets you preserve the information rather than the original document. The narrow exceptions in section 12B(4A) cover documents that show tax has already been deducted, such as a P60 or a CIS payment and deduction statement, where keeping the original may matter.

Are bank statements enough on their own to prove an expense?

Usually no. A statement shows that money moved, not that the spend was wholly and exclusively for the trade. Pair it with a receipt or supplier invoice that shows what you bought and why it was for the business.

What is the £3,000 fine I keep reading about?

It is the maximum penalty for failing to keep or preserve adequate records, set by TMA 1970 section 12B(5). In practice HMRC tends to focus on tax-geared inaccuracy penalties under Schedule 24 of the Finance Act 2007, which can be larger if profits have been understated.

Do I have to use accounting software?

Today, no. HMRC accepts paper, spreadsheets and software, as long as the records are accurate, complete and readable. From 6 April 2026, sole traders with qualifying income over £50,000 must keep digital records and submit quarterly updates under Making Tax Digital for Income Tax. The thresholds drop to £30,000 in April 2027 and £20,000 in April 2028.

Is "qualifying income" turnover or profit?

Turnover (gross income) from your trade, plus gross property income if you have any. Not your profit. A freelancer with £55,000 of invoiced fees and £20,000 of expenses has qualifying income of £55,000.

Can I still use a spreadsheet under MTD?

Yes, but the spreadsheet has to be linked digitally to bridging software that can talk to HMRC's API. Copy and paste between documents and manual retyping are not "digital links" under HMRC's published guidance.

What is the minimum I need to record for each transaction under MTD?

The date, the amount, and the category (categories follow the existing Self Assessment self-employment pages). You do not need to scan or store every receipt digitally to comply with MTD, though you still need to keep the receipts themselves to support the entries.

What records do I need if I am using the trading allowance?

If your gross trading income is under £1,000 and fully covered by the £1,000 trading allowance, HMRC only requires records of your income. Records of expenses are not required, though many people keep them anyway in case claiming actual expenses would beat the allowance.

What records do I need for mileage and use of home?

For mileage, keep a log with date, journey and business miles. Under simplified expenses, the rate is 45p per mile for the first 10,000 business miles in a car or van, then 25p. For working from home under simplified expenses, keep a monthly note of hours worked at home (the £10, £18 or £26 monthly bands depend on hours). For both, once you choose a method for a vehicle or for your home use you stick with it for that period.

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Solas is a mobile-first accounting and tax app for UK sole traders. If you would rather not think about any of the above, we can take care of it for you.