Buy something in a shop, and you may be asked if you want a receipt. While a receipt confirms a purchase, it is not legally required unless both buyer and seller are VAT-registered. Your consumer rights remain protected even without a receipt.
For businesses, however, HMRC takes a stricter view. Poor record-keeping can lead to penalties. If HMRC investigates and finds missing or inaccurate records, you may face fines or legal action.
What Are Proper Business Records?
HMRC does not demand a specific record-keeping method. You can keep paper receipts or digital copies. Scanning, photographing, or saving receipts in accounting software all meet HMRC standards. However, all necessary information must be captured, including both sides of the receipt. Records must be readable if HMRC requests them.
Recent tax cases show HMRC is more likely to disallow expenses without receipts. In Mediability v HMRC [2023] UKFTT 315 (TC), a taxpayer relied on bank statements instead of receipts. The Tribunal ruled that bank statements alone were insufficient proof. Most claimed expenses were disallowed. Always keep receipts or invoices to justify business expenses.
Can You Use Estimates For Expenses?
Self-employed taxpayers can use estimates in certain cases. However, estimates must be reasonable and based on clear methods, such as using a mileage logbook for travel expenses. If an estimate appears too high or too low, HMRC may request additional proof or launch an inquiry.
Regularly relying on estimates without improving record-keeping could trigger HMRC scrutiny.
Simplified Expenses: A Useful Alternative
Simplified expenses allow some self-employed individuals and partnerships to use flat-rate expenses instead of collecting receipts. This method reduces administrative tasks.
Simplified expenses only apply to:
- Vehicle costs
- Working from home expenses
- Business premises where you live
For home working, simplified expense claims are allowed if you work at least 25 hours per month from home. The flat rates are:
| Business Hours | Flat rate |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
Limited companies and partnerships with corporate partners cannot use simplified expenses.
How Long Should You Keep Receipts?
Self-employed individuals must keep tax records for at least five years after the 31 January self-assessment deadline. For example, records for the 2018/19 tax year can be discarded after 31 January 2025. However, records related to property purchases should be kept longer for capital gains tax purposes.
Limited companies must keep records for at least six years from the end of the relevant financial year.
Making Tax Digital (MTD) And Digital Records
Making Tax Digital (MTD) requires VAT-registered businesses to keep digital records using compatible software. From April 2026, MTD for Income Tax will apply to self-employed individuals and landlords earning over £50,000. From April 2027, it will apply to those earning over £30,000.
HMRC now requires businesses to store digital records of income and expenses. Ideally, receipts should be scanned and uploaded into MTD-compatible software like Dext.
Final Thoughts
Keeping receipts is vital for tax compliance and avoiding penalties. Whether you use paper records, digital storage, or simplified expenses, ensure your records meet HMRC standards. Consider using cloud accounting software like Budgetwhizz to streamline financial management and compliance.
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