The Importance of Keeping Receipts: Best Practices and Methods

Why Do Receipts Matter?

You are often asked whether you want a receipt when making a purchase. While keeping receipts is not legally required for most personal transactions (unless both the seller and buyer are VAT-registered), they serve as valuable proof of purchase. Consumer rights remain intact even without a receipt, as other evidence—such as bank statements—can sometimes be used to verify a transaction.

However, for businesses, HMRC takes a stricter approach. Inadequate record-keeping can result in financial penalties, legal consequences, or disallowed expense claims. If HMRC investigates and finds missing or inaccurate records, businesses may face significant fines or additional scrutiny.

What Counts as ‘Proper Records’?

HMRC does not mandate a single method for maintaining records but requires that all necessary details be captured and stored in an accessible and legible format. Acceptable forms of record-keeping include:

• Physical receipts are stored in an organized manner.
• Digital copies, such as scanned receipts or photos saved on a mobile device.
• Software-based records using accounting tools that log expense details.

Recent tax cases highlight HMRC’s increasing insistence on proper documentation. For instance, in Mediability v HMRC [2023] UKFTT 315 (TC), a taxpayer attempted to justify business expenses using only bank statements without supporting receipts. The Tribunal ruled that this was insufficient, and many claims were disallowed. This underscores the importance of retaining receipts to substantiate business expenses.

Can You Use Estimates for Expenses?

For self-assessment taxpayers, estimates may be accepted under specific conditions. The key is that these estimates must be based on reasonable assumptions, such as:

• Mileage records derived from a logbook.
• Average utility costs for a home office.

However, excessive reliance on estimates without supporting records can trigger HMRC inquiries. If estimates seem unusually low or high, further evidence may be required to validate the claims.

Simplified Expenses: A Useful Alternative

To ease the administrative burden, HMRC allows self-employed individuals and partnerships (excluding limited companies) to use simplified expenses. These apply only to certain categories, such as vehicle use, working from home, or living on business premises. Instead of tracking each cost, taxpayers can apply fixed rates:

This approach helps streamline record-keeping while ensuring compliance.

How Long Should Receipts Be Kept?

The retention period for tax records varies depending on the taxpayer type:

• Self-assessment taxpayers must keep records for at least five years after the 31 January tax return deadline. For example, documents related to the 2018/19 tax year can be discarded after 31 January 2025.
• Corporate taxpayers must retain records for at least six years from the end of the last financial year to which they relate.
• Property owners should keep records of property purchases and expenses for capital gains tax calculations.

The Shift to Digital: Making Tax Digital (MTD)

HMRC’s Making Tax Digital (MTD) initiative is reshaping record-keeping. VAT-registered businesses are already required to maintain digital records using MTD-compatible software. From April 2026, MTD for Income Tax will apply to unincorporated businesses and landlords earning over £50,000 annually (expanding to those earning over £30,000 from April 2027).

To comply, businesses must use software that:

• Record income and expenses digitally.
• Integrates with HMRC’s systems for real-time tax reporting.
• Allows receipts to be scanned and automatically logged using tools such as Dext (formerly Receipt Bank).

Final Thoughts

Maintaining proper records is not just about compliance; it protects businesses and individuals from potential disputes with HMRC. Whether through paper or digital means, keeping organized, legible, and accurate records ensures smooth tax reporting and reduces the risk of penalties. As tax regulations evolve, embracing digital solutions will be increasingly beneficial.

Additional Resources:

• HMRC Guide to Keeping Tax Records
• Mediability v HMRC Case Details

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