What digital records must UK businesses keep for HMRC?

UK businesses must keep digital records of all sales, purchases, expenses and VAT transactions to meet HMRC requirements under Making Tax Digital. These records must be accurate, complete and available for inspection for set periods.

Keeping the right records helps you file correct returns, manage cash flow and avoid penalties. This guide explains the practical steps early-stage founders and e-commerce sellers need to follow.

Core records every UK business must keep

All UK businesses must maintain records that show their income, expenses and tax liabilities. This includes sales invoices, purchase invoices, bank statements, receipts and mileage logs. For e-commerce sellers this also covers platform reports from Amazon, Shopify or eBay.

Records must be kept in a way that allows HMRC to see a clear audit trail. Digital storage is now preferred and in many cases required. Choose software that supports Making Tax Digital compatible formats so information can be submitted directly to HMRC.

Invoice retention periods for HMRC

Businesses must normally keep records for six years from the end of the tax year or accounting period they relate to. This applies to both corporation tax and VAT records. For self-assessment taxpayers the clock usually starts after 31 January following the tax year.

Practical example: an invoice dated 15 March 2024 for the 2023-24 tax year should be kept until at least 31 January 2031. If HMRC opens an enquiry the period can extend. E-commerce sellers should archive order confirmations, dispatch notes and refund records alongside invoices.

Store digital copies in a searchable system. Paper originals can be scanned provided the electronic version is legible and complete. Always include the date, customer or supplier name, description of goods or services, amount and VAT if applicable.

Acceptable digital formats and storage rules

HMRC accepts most common digital formats including PDF, CSV, XML and spreadsheets, provided the information is not altered after creation. Cloud storage is allowed if you can produce records quickly when requested. Choose providers that offer strong encryption and regular backups.

Key steps for e-commerce founders:

Export reports from sales platforms monthly and save them with clear file names including the month and year.
Scan paper receipts immediately and link them to the relevant bank transaction in your accounting software.
Keep a separate digital folder for each tax year to simplify retrieval.
Ensure any software you use creates an audit log that shows when records were created or changed.

Do not rely solely on your bank app. Download statements in a permanent format rather than relying on online access that may expire.

Making Tax Digital requirements explained

Making Tax Digital requires VAT-registered businesses to keep digital records and submit VAT returns using compatible software. Most businesses with taxable turnover above certain levels must follow these rules, although the exact thresholds change so always check current GOV.UK guidance.

For income tax self-assessment, digital record keeping and quarterly updates are being introduced in stages. The software must connect directly to HMRC systems to send information automatically. Choose MTD-compatible accounting packages that handle both VAT and income tax obligations.

Practical tip: link your bank feed to the software so transactions are imported automatically. Categorise each item as you go rather than leaving everything until the end of the quarter. This reduces errors and saves time when filing.

Common pitfalls for early-stage e-commerce businesses

Many new founders mix personal and business spending, making it hard to separate records later. Use a dedicated business bank account and credit card from day one. Take a clear photo of every receipt and note the business purpose immediately.

Another frequent issue is losing platform data when changing marketplaces. Download and store monthly reports even if you think the platform keeps them forever. Different platforms have different data retention policies and HMRC will expect you to provide the information.

Overlooking digital links is also common. If you use spreadsheets, make sure formulas are preserved and the file is saved in a non-proprietary format that HMRC can open without special software.

Setting up a simple compliant system

Start with cloud accounting software that supports Making Tax Digital. Connect your business bank account so transactions import daily. Create a digital filing structure with folders for sales, purchases, bank, VAT and payroll if applicable.

Follow this monthly routine:

Reconcile bank transactions to invoices and receipts.
Categorise every item using consistent labels.
Export and save platform sales reports.
Review VAT figures and check they match your software totals.
Back up the entire set of records to a second secure location.

Document your processes in a short written note so anyone who helps with your books can follow the same method. This creates consistency even if you outsource bookkeeping later.

How Loomworks supports record-keeping compliance

Founders based at Loomworks in Liversedge can access operator mentoring that includes practical guidance on setting up digital record systems that meet current HMRC expectations. This support helps early-stage e-commerce businesses build compliant processes from the beginning without incurring extra costs.

Frequently asked questions

Can I store my business records only on my phone?

You can capture records on your phone but they must be transferred to a permanent, searchable digital system that allows quick production for HMRC. Relying solely on a phone risks data loss if the device fails and makes it harder to organise six years of records.

Do I need to keep paper copies if I scan everything?

Once a clear, complete digital copy is made and stored safely, the original paper can usually be destroyed. Ensure scans show all details including both sides of receipts where relevant. Always keep the digital files in an organised, backed-up system.

What happens if I cannot produce digital records when HMRC asks?

Failure to produce required records can lead to penalties and estimated tax assessments. HMRC expects records to be available promptly. Keeping incomplete or poorly organised digital files increases the risk of disputes and extra compliance costs.

How often should I back up my digital records?

Back up at least monthly and ideally weekly. Use automated cloud backup services that store copies offsite. Test restoration periodically to confirm files remain readable. This protects against hardware failure or ransomware.

Does Making Tax Digital apply to all new e-commerce sellers?

Making Tax Digital applies once your VAT registration or income tax obligations reach certain levels, which change over time. Check the latest GOV.UK guidance for your specific situation. Even if not yet mandatory, using compatible software simplifies future compliance.