How to record business expenses and keep receipts HMRC will accept

Why good record-keeping matters

Good record-keeping isn't just about compliance; it's a fundamental part of running a successful business. It helps you accurately calculate your tax liability, claim all eligible deductions, and provides essential evidence if HMRC ever queries your tax return. Without proper records, you risk penalties for incomplete or inaccurate submissions.

What records HMRC expects you to keep

HMRC requires you to keep records of all money coming into and going out of your business. For expenses, this means documenting what you bought, when, how much it cost, and why it was for the business.

At a minimum, you should keep:

• Receipts, invoices, and bills for everything you purchase.
• Bank and credit card statements showing payments.
• A log of cash purchases where no card record exists.
• Mileage logs for business journeys, including dates, purpose, start/end points, and total miles.
• Records supporting any apportioned costs, such as home office expenses.
• VAT records, if your business is VAT-registered, including VAT invoices, credit/debit notes, and your VAT account.
• Payroll records, if you employ staff, including employee details and tax codes.

What makes a receipt valid?

For a receipt to be valid for business claims, it should generally include:

• Date of transaction.
• Vendor details (name and contact information).
• Total amount paid, ideally with an itemised list of costs.
• Payment method.
• A description of the goods or services.
• The business purpose of the expense (which you might need to note alongside the receipt).

Digital record-keeping and Making Tax Digital (MTD)

HMRC accepts both paper and digital records, provided they are complete, readable, and accessible. However, with the ongoing rollout of Making Tax Digital (MTD), there's an increasing expectation for businesses to maintain structured digital records.

For self-employed individuals and landlords with combined self-employment or property income over £50,000, MTD for Income Tax Self Assessment (ITSA) becomes mandatory from April 2026. This means you'll need to:

1. Create digital records of all business income and expenses using MTD-compatible software.
2. Store these records digitally throughout the tax year and for the required retention period.
3. Keep supporting documents (receipts, invoices, bank statements) that back up your digital records.
4. Submit quarterly updates generated from your digital records.

Digital records can include photos of paper receipts, scanned documents, email receipts, and app-generated invoices, as long as the image is clear and complete.

How long to keep your records

The length of time you need to keep your records depends on your business structure:

• Sole traders and partnerships: Keep records for at least five years after the 31 January submission deadline for the relevant tax year. For example, records for the 2025/26 tax year (due 31 January 2027) must be kept until at least 31 January 2032.
• Limited companies: Keep accounting records for at least six years from the end of the financial year they relate to. You may need to keep them longer if they cover more than one accounting period, relate to assets expected to last over six years, your Company Tax Return was late, or HMRC has started a compliance check.
• VAT records: Generally, retain for six years.

Simplified expenses

For sole traders and partnerships, HMRC offers "simplified expenses" for certain common costs, which can reduce administrative burden. These are flat rates you can use instead of calculating actual costs.

Common simplified expenses (figures for illustration — check current rates for 2026/27):

• Business mileage: 45p per mile for the first 10,000 business miles in a tax year, then 25p per mile thereafter (2025/26 rates). This covers fuel, insurance, and servicing.
• Working from home: A monthly flat rate based on hours worked from home (2025/26 rates):
• 25-50 hours: £10 per month
• 51-100 hours: £18 per month
• 101+ hours: £26 per month
• Living in your business premises: A flat-rate deduction depending on the number of people living in the property (2025/26 rates).

Using simplified expenses means you don't need to keep detailed receipts for these specific costs, but you still need to record the relevant activity (e.g., mileage logs or hours worked from home).

Common mistakes

• Mixing personal and business finances: This makes it difficult to distinguish allowable business expenses.
• Missing key information on receipts: Incomplete receipts may not be accepted by HMRC.
• Not keeping records long enough: Failing to meet retention periods can lead to penalties.
• Assuming all expenses are allowable: Only costs "wholly and exclusively" for business purposes can be claimed.
• Delaying record-keeping: Waiting until year-end to sort expenses increases the risk of lost receipts and errors.