Question 1

What bookkeeping records do I legally have to keep?

Accepted Answer

You need enough to prepare a correct return and to prove the figures if HMRC asks: all sales and other income, all business expenses, bank and cash records, and — if you are VAT registered — a VAT account. If you hold stock, you need year-end stock figures. If you own business assets, you need records of what you bought, when, and for how much. The test HMRC applies is whether the records support the return, so a bank statement alone is rarely enough: it shows £340 left your account but not what it was for or whether it was allowable. That is why the receipt matters as much as the payment. Under MTD these same records simply have to be kept digitally rather than in a folder.

Question 2

How long do I need to keep my records?

Accepted Answer

Sole traders and landlords must keep records for at least five years after the 31 January submission deadline for the relevant tax year, which in practice means nearly six years from the end of the tax year itself. Limited companies must keep theirs for six years from the end of the accounting period. VAT records must be kept for six years. If a return was filed late, or HMRC has opened an enquiry, the clock runs longer — keep everything until the enquiry is settled. Digital records make this considerably easier, since the retention obligation is discharged by the software rather than by a loft full of boxes. Do not assume your bank fills the gap: most banks only make a few years of statements available, and the duty is yours, not theirs.

Question 3

Do I have to keep paper receipts if I photograph them?

Accepted Answer

No — a clear digital image is an acceptable record, and you can throw the paper away once it is captured, with one significant exception. HMRC accepts scanned or photographed documents provided the image is legible and shows all the information the original did. The exception is anything showing VAT paid that you intend to reclaim on an unusual footing, and any document you might need in original form for a non-tax reason, such as a warranty or a legal dispute. The practical failure mode is not legality but legibility: a blurred, half-cropped photo of a faded till receipt is not a record, it is a picture of one. Most software has a phone app that captures, reads and files the receipt against the bank transaction in one step.

Question 4

Can I use my personal bank account for my business?

Accepted Answer

Legally yes if you are a sole trader or landlord, but it is the single most expensive habit we see. Nothing prohibits it — you and the business are the same legal person — but every transaction then has to be sorted by hand rather than flowing in through a bank feed, which is precisely the manual work MTD is designed to remove. It also weakens you under enquiry, because HMRC can ask to see the whole account and you lose the clean line between business and private spending. For a limited company it is different and more serious: the company's money is not yours, and paying personal costs from the company account creates director's loan and benefit-in-kind problems. A separate account costs little and pays for itself immediately.

Question 5

How do I handle cash takings?

Accepted Answer

Record them at the point they arise, every day, and bank them intact rather than spending out of the till. Cash is where most enquiries start, because it is the only income with no automatic trail — a bank feed proves a card payment happened, but nothing outside your own records proves a £20 note did. So the discipline is a daily takings record, reconciled to what you bank, with any cash spending recorded separately rather than netted off. Under MTD the takings record must be digital, though you can record a day's takings as a single daily total rather than every individual sale. What you cannot do is work backwards from your bankings at year end. That is not bookkeeping, and it does not survive contact with an inspector.

Question 6

What is the difference between cash basis and accruals accounting?

Accepted Answer

Cash basis counts income when the money arrives and expenses when they leave; accruals counts them when the work is done or the cost is incurred, regardless of payment. Cash basis is now the default for most sole traders and partnerships, and you have to elect out to use accruals. For a trade paid promptly, cash basis is simpler and gives a fairer picture. Where it hurts is if you carry significant unpaid invoices, hold stock, or have large equipment purchases, because the timing distortions can be substantial and some reliefs work differently. Limited companies must use accruals; there is no choice. This is a decision worth making deliberately rather than by default, and it is one of the first things we look at when taking someone on.

Question 7

My books are years behind — can you catch me up?

Accepted Answer

Yes, and it is a routine job rather than a confession. Catch-up work starts with whatever exists — bank statements, an app full of receipts, a carrier bag — and rebuilds each year in sequence, because you cannot do the recent ones without the opening position from the older ones. Where records are genuinely missing we reconstruct from bank data and reasonable estimates, and where an estimate is unavoidable we disclose it rather than presenting a guess as fact. If returns are late, the priority is usually to file rather than to perfect, because late filing penalties accrue while you polish. HMRC treats an unprompted disclosure very differently from one that follows their letter, so the time to start is before they write, not after.

Question 8

Should I do my own bookkeeping or outsource it?

Accepted Answer

Do it yourself if your affairs are simple and you will genuinely keep up; outsource if the honest answer to that is no. Modern software has narrowed this considerably — with a bank feed and receipt capture, a sole trader's bookkeeping is often twenty minutes a week of approving suggestions, and paying someone to do that is poor value. The calculation changes when you have staff, stock, CIS, multiple income streams, or a track record of leaving it until it is a crisis. The hidden cost of self-managed books is not the time, it is the year-end: if your categories are wrong, we spend our fee unpicking them, and you pay for both. Many of our clients land on a middle position where they do the routine and we review each quarter.

Question 9

How do I split costs that are part business and part personal?

Accepted Answer

Claim the business proportion, and be able to explain how you arrived at it. A phone used 70% for work means 70% of the bill is allowable; a van used privately at weekends needs a mileage-based restriction. The method matters less than the evidence: a defensible basis you applied consistently will survive scrutiny, while a round 50% you cannot justify will not. Working from home follows the same logic, though there is a flat rate available that avoids the calculation entirely and is usually the right answer for modest use. What HMRC objects to is not apportionment but the absence of any reasoning behind it. Record the basis when you set the split, not two years later when you are being asked to remember it.

Question 10

What does bookkeeping look like once MTD applies to me?

Accepted Answer

Broadly the same work, done continuously rather than in one annual panic. The obligations do not change — the same records, the same evidence — but they must be kept digitally and, because you are summarising to HMRC every quarter, they have to be reasonably current rather than reconstructed in January. That is the real behavioural shift, and it is the one that helps most: problems surface within weeks instead of ten months later when the counterparty has vanished. In practice, for a client on software with a bank feed, it looks like approving categorised transactions weekly and photographing receipts as you get them. The annual shoebox becomes impossible, which people mourn briefly and then stop missing.

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