Section 12B of the Taxes Management Act 1970 requires every sole trader and partner to keep the records needed to make a correct and complete tax return, including records of all amounts received and spent in the business and what each was for, plus all sales and purchases of goods if the trade deals in goods. Business records must be kept until at least the fifth anniversary of the 31 January filing date, so records for 2026 to 2027 must be kept until 31 January 2033, and longer if an enquiry is open. The penalty for failing to keep or preserve records is up to £3,000 per return.

What does the law require a sole trader to keep?

Section 12B(1) applies to anyone who may be required to file a Self Assessment return. They must keep all records requisite to make and deliver a correct and complete return, and preserve them for the required period. For someone carrying on a trade, profession or business, alone or in partnership, section 12B(3) adds that the records must include:

  • all amounts received and spent in the course of the business, and what each receipt and payment was for; and
  • where the trade involves dealing in goods, all sales and purchases of goods.

HMRC’s Compliance Handbook at CH11200 says HMRC does not specify in detail the type of record that must be kept, and that although section 12B(3A) allows regulations to specify records, none have been made for Income Tax. CH11300 confirms that trade includes the letting of property for these purposes.

In practical terms GOV.UK lists records of all sales and income, all business expenses, VAT records if you are registered, PAYE records if you employ people, records of your personal income and any Self Employment Income Support Scheme grants. Proof includes receipts for goods and stock, bank statements and cheque stubs, and sales invoices, till rolls and bank slips. GOV.UK adds that records must be accurate and you must be able to identify business transactions.

Extra records under traditional accounting

The cash basis has been the default since 2024 to 2025. If you opt out and use traditional accounting, GOV.UK says you also need records of amounts owed to you but not yet received, bills received but not yet paid, the value of stock and work in progress at the end of the period, year end bank balances, money you have put into the business and money taken out for your own use. The differences are explained in cash basis vs accruals accounting.

Can records be kept digitally?

Yes. Section 12B(4) lets you preserve records in any form and by any means, or preserve just the information in them. Section 12B(4A) carves out a few documents where the record itself must be kept rather than only the information in it, including statements of distributions or of tax deducted, the payment and deduction statements a Construction Industry Scheme subcontractor receives, and records supporting a claim for foreign tax.

If you are within Making Tax Digital for Income Tax, HMRC’s guidance requires each digital record to show the amount, the date the income was received or the expense incurred, and a category, and it must be created and stored in compatible software. Records sent in a quarterly update must not be moved by copying or cut and paste. HMRC also says you must keep the original records or supporting documents, such as bank statements and invoices, as you would for Self Assessment.

How long must records be kept?

Type of record Minimum period Reference
Self employed and partnership business records Fifth anniversary of 31 January after the tax year, or later if an enquiry is open or the enquiry window has not closed TMA 1970 s12B(1) and (2)(a); CH14530
Personal records of someone not in business First anniversary of 31 January after the tax year TMA 1970 s12B(2)(b)
Return filed more than 4 years late 15 months after the return is sent GOV.UK record keeping guidance
VAT records Generally at least 6 years VAT Notice 700/21
PAYE and CIS records 3 years after the end of the tax year, longer if also needed for the business return CH14700

CH14530 explains the enquiry window: for a return filed on time it closes 12 months after the return was filed; for a late return it closes on the first anniversary of the next quarter day after filing. If HMRC opens an enquiry, records must be kept until it is completed. Records about buying or improving a capital asset need to be kept until the period after its eventual disposal has run, which can be many years after the purchase (CH14650). HMRC has power to set shorter periods but CH14800 says it has not done so.

The statutory minimum is not the limit of HMRC’s reach. HMRC can make assessments up to 6 years back for careless errors and 20 years for deliberate ones under section 36 of the Taxes Management Act 1970, as explained in how far back can HMRC go. Destroying records on the earliest permitted date leaves you with nothing to answer a later discovery assessment.

What are the penalties for poor records?

Section 12B(5) makes a person who fails to keep or preserve records for a year liable to a penalty not exceeding £3,000. It does not apply where the missing records would only have supported claims, elections or notices not included in the return (section 12B(5A)).

HMRC’s Enquiry Manual at EM4650 sets out how the penalty is used:

  • there can only be one failure per return, and the penalty can be set below the maximum and appealed;
  • HMRC says penalties will only be sought in the more serious cases, such as records destroyed deliberately to obstruct an enquiry or a history of record keeping failures;
  • on a first occasion that is not provable deliberate destruction, the officer normally sends a written warning instead;
  • in most cases poor records are reflected in the level of any inaccuracy penalty under Schedule 24 to the Finance Act 2007.

That last point is the real cost. Without records it is much harder to show that an error was not careless; see penalties for tax return errors. HMRC can also require documents with a formal Schedule 36 information notice.

What if records are lost, stolen or destroyed?

GOV.UK says that if you cannot replace your records you must do your best to provide figures, and tell HMRC when you file whether you are using estimated figures or provisional figures. Provisional figures must be followed by the actual figures once available. How to present them on the return is covered in estimated figures on a tax return. Bank statements, customer emails and supplier accounts can usually be requested again, so rebuilding is often possible.

How do the time limits work in a real case?

Illustration only. Mia, a self employed plumber, files her 2026 to 2027 return online on 15 December 2027.

  • Her basic retention date is the fifth anniversary of 31 January 2028, which is 31 January 2033.
  • Because she filed on time, HMRC can open an enquiry until 15 December 2028. If it opens one and the enquiry closes in 2034, she must keep the records until then.
  • She is VAT registered, so her VAT records for the period also need to be kept for at least 6 years.
  • She stores scanned receipts in the cloud. That is acceptable under section 12B(4), but the CIS deduction statements she receives as a subcontractor must be kept as records, not just summarised.

What mistakes cause problems in an enquiry?

  • Relying on bank statements alone. The law requires records of what each receipt and payment was for, not just the amounts.
  • Unrecorded cash takings. Cash sales must be recorded as they happen, because section 12B requires a record of every amount received.
  • Mixed personal and business spending with no notes. If you use one account, mark which items are business.
  • Losing data when changing software. Export your records before closing an old subscription.
  • Thinking the trading allowance removes record keeping. GOV.UK says you must still keep a record of income.
  • Throwing records away on the first permitted day. Keep them while an enquiry window is open or a dispute is live.

New businesses should set this up from the start; see how to register as self employed.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.