- HMRC requires records to be kept for at least 6 years from the end of the accounting period
- Company and personal finances must be completely separate — different bank accounts
- Dividend payments require a board minute and dividend voucher — no exceptions
- MTD requires digital records for all VAT transactions (and ITSA from 2026 if applicable)
- Monthly reconciliation takes 30–60 minutes in most accounting software
Legal record-keeping requirements
As a company director, you have statutory obligations to maintain financial records. HMRC requires:
| Record type | Minimum retention period |
|---|---|
| Company accounts records (invoices, receipts, bank statements) | 6 years from the end of the accounting period |
| PAYE and payroll records | 3 years from the end of the tax year (HMRC recommends 6) |
| VAT records | 6 years |
| CT records supporting the CT600 | 6 years from the end of the accounting period |
| Dividend minutes and vouchers | 6 years — permanently if possible (good practice) |
| Mileage logs | 6 years from the tax year end |
| Contracts with suppliers/clients | 6 years after contract end (or longer if specified) |
HMRC can open an enquiry into company tax returns up to 4 years after filing (6 years if careless, 20 years if fraud is suspected). The 6-year retention rule exceeds the standard enquiry window — giving you coverage in all but the most exceptional cases.
The golden rule: complete separation
A limited company is a separate legal entity from you personally. Its finances must be kept entirely separate:
- Never use your personal bank account for company transactions
- Never pay personal costs from the company account without proper categorisation — these go on the director's loan account and can create tax issues
- Never receive business income into your personal account
The cleanest arrangement: all company income goes to the company account; all company expenses are paid from the company account (or reimbursed to you with proper expense records). Your personal account only receives formally declared salary and dividends.
The monthly bookkeeping routine
Staying current means about 30–60 minutes per month for most sole directors. Here is a step-by-step routine:
| Task | Time | Notes |
|---|---|---|
| 1. Reconcile the bank account | 10–20 min | Match every transaction in your software to the bank statement. Bank feeds automate much of this. |
| 2. Categorise transactions | 5–15 min | Assign each expense to the correct category: salary, travel, software, insurance, etc. |
| 3. Raise and chase sales invoices | 5–10 min | Create invoices for work completed; follow up on overdue payments |
| 4. Submit personal expense claims | 5–10 min | Log mileage and any out-of-pocket expenses; record the reimbursement from the company |
| 5. Check VAT position (if registered) | 5 min | Review running VAT balance in software; ensure quarterly filing is on track |
| 6. Review estimated tax position | 5 min | FreeAgent shows live CT and SA estimates — check you're aware of upcoming liabilities |
Dividend documentation: a critical step many directors miss
Every dividend payment requires two documents:
- Board minute: a written resolution declaring the dividend — the date, the amount per share, and the total amount declared. Signed by you as director.
- Dividend voucher: a document given to each shareholder showing the company name, date, dividend per share, and tax credit (now replaced by dividend allowance information). Used for your Self Assessment return.
Taking money from the company without these documents means it is not legally a dividend — it sits on the director's loan account as a loan, potentially triggering S455 tax. Create the documents at the time of each payment, not retrospectively at year-end.
Interim vs final dividends: Most sole directors pay interim dividends throughout the year as they take drawings. An interim dividend can be paid at any time by a board resolution. A final dividend is declared after the year-end when profits are confirmed. Both are valid — interim dividends are more practical for regular drawings.
Managing receipts and invoices
For MTD for VAT compliance, you must digitally record the key data from each transaction. For practical HMRC enquiry protection, retain supporting evidence:
| Document type | Recommended approach |
|---|---|
| Business invoices (received) | Photograph or scan with your phone; upload to accounting software or cloud storage |
| Business receipts | Same — photograph immediately before paper fades |
| Sales invoices (issued) | Created in accounting software — automatically retained |
| Bank statements | Download PDFs monthly; accounting software bank feeds replace manual statements |
| Mileage log | Use an app (MileIQ, Driversnote) or a simple spreadsheet — record each journey at the time |
| Dividend minutes and vouchers | Keep a dedicated folder — physical or cloud. These are critical company records. |
Year-end bookkeeping tasks
Before handing over to your accountant at year-end:
- Final bank reconciliation: ensure the last day of the accounting period is fully reconciled
- Director's loan account review: check the DLA balance and clear any overdrawn amount before year-end (or within 9 months after)
- Dividend check: confirm all drawings have been properly documented as dividends
- Expense reimbursement check: submit any outstanding personal expense claims
- Fixed asset register: confirm all capital assets are recorded correctly with purchase dates and costs
- Pension contributions: check any planned employer contributions are processed before year-end
Providing your accountant with clean, reconciled books significantly reduces their preparation time and your fee.
Common bookkeeping mistakes to avoid
- Letting bank reconciliation fall behind: reconciling monthly prevents small errors from compounding into large problems at year-end
- Taking dividends without documentation: undocumented drawings can be reclassified as loans — with S455 and BIK consequences
- Mixing business and personal accounts: creates legal and tax complications that are expensive to untangle
- Losing receipts for business expenses: HMRC will disallow unsupported expenses in an enquiry — photograph receipts immediately
- Ignoring the DLA balance: an unmonitored director's loan account can result in unexpected S455 tax charges
- Categorising expenses incorrectly: wrong categories affect CT calculations — if unsure, ask your accountant rather than guessing
Use the calculator
Frequently asked questions
Do I need to scan and store all receipts digitally?
How long do I need to keep payroll records?
Can I do my own bookkeeping or do I need an accountant?
What is the difference between bookkeeping and accountancy?
Do I need to keep records for a dormant company?
Important: This guide is for general information only and does not constitute tax or legal advice. Tax rules change — always verify current rates and thresholds with HMRC or a qualified accountant before making decisions.