Bookkeeping is the routine recording of every financial transaction your business makes: sales, purchases, receipts and payments. Good books tell you whether you are making money, keep you compliant with HMRC and Companies House, and make year-end far cheaper.
What records UK businesses must keep
A limited company must keep accounting records of all money received and spent, details of assets and liabilities, stock held at the year end, and the goods and services bought and sold, with who they were bought from or sold to. Sole traders must keep records of sales, expenses, VAT if registered, and personal income related to the business.
In practice this means:
- Sales invoices and receipts
- Purchase invoices, receipts and expense claims
- Bank and card statements
- Payroll records, if you employ staff
- VAT records, if VAT-registered
- Loan, asset and lease documents
How long to keep records
Limited companies generally need to keep accounting records for six years from the end of the financial year they relate to, and sometimes longer. Sole traders usually need to keep records for at least five years after the 31 January submission deadline of the tax year. Check GOV.UK for the rule that applies to you.
Making Tax Digital
VAT-registered businesses must keep digital records and file VAT returns through compatible software. Making Tax Digital for Income Tax started on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, with the threshold falling to £30,000 from April 2027 and £20,000 from April 2028. Businesses in scope send HMRC quarterly updates from compatible software.
Choosing bookkeeping software
Cloud software such as Xero, QuickBooks Online, Sage and FreeAgent connects to your bank, captures receipts from your phone and is compatible with Making Tax Digital. The best choice is the one you and your bookkeeper will actually keep up to date.
A simple monthly routine
- Upload all receipts and bills as they arrive.
- Categorise bank transactions weekly.
- Raise sales invoices promptly and chase overdue ones.
- Reconcile every bank and card account at month end.
- Review a profit and loss report and cash position.
Our monthly bookkeeping checklist breaks this down step by step.
Common mistakes to avoid
- Mixing personal and business spending in one account
- Leaving reconciliations until the year end
- Losing receipts for small expenses
- Not tracking who owes you money
- Misclassifying capital purchases as everyday expenses
Do it yourself or outsource?
Doing your own books can work when transactions are few and you enjoy the detail. Once you spend more than a few hours a month on it, have staff on payroll, or keep falling behind, an outsourced bookkeeper is usually cheaper than your own time. Note that bookkeeping is different from accountancy: a bookkeeper keeps records accurate, while an accountant prepares statutory accounts and tax returns from them.
Read more about our bookkeeping and payroll service, or book a free consultation.
Frequently asked questions
What is bookkeeping?
Bookkeeping is the day-to-day recording and organising of a business's financial transactions, such as sales, purchases, receipts and payments, so that accurate reports and tax returns can be produced.
How long should a UK limited company keep its records?
Generally six years from the end of the financial year they relate to, though some situations require longer. GOV.UK sets out the rules.
Do I need software for bookkeeping?
If you are VAT-registered or in scope for Making Tax Digital for Income Tax, you must keep digital records in compatible software. Most other businesses also find cloud software saves time.
Is a bookkeeper the same as an accountant?
No. A bookkeeper maintains accurate records day to day. An accountant uses those records to prepare statutory accounts, tax returns and advice.