Good bookkeeping is the foundation of everything else: accurate tax returns, reliable cash flow and a painless year end. Here's what records you need to keep, the habits that keep your books in order, and how to decide what to do yourself and what to outsource.
Bookkeeping is the day-to-day recording of your business's money: every sale, every cost, every payment in and out. It isn't glamorous, but it's the foundation for everything else. Your VAT returns, tax returns and year-end accounts are all built from your books, and so is your understanding of how the business is really doing. For small businesses in Bristol and across the UK, getting bookkeeping right saves money, time and stress.
What records does a small business need to keep?
- All sales and income, with copies of the invoices you issue
- All business costs, with receipts and supplier invoices
- Bank, credit card and loan statements
- Payroll records, if you employ anyone
- VAT records, if you're VAT registered
- Details of assets you buy and sell, such as equipment and vehicles
- Money you personally put into, or take out of, the business
How long to keep your records
Sole traders must keep records for at least 5 years after the 31 January Self Assessment deadline for the tax year they relate to. Limited companies must keep records for 6 years from the end of the financial year they relate to, and directors can be fined £3,000 or disqualified if proper records aren't kept. Digital records are fine, as long as they're clear and complete.
Making Tax Digital is changing bookkeeping
VAT-registered businesses already have to keep digital records and file VAT returns using compatible software. Making Tax Digital for Income Tax is now extending this to sole traders and landlords: from April 2026 if your qualifying income is over £50,000, from April 2027 if it's over £30,000, and from April 2028 if it's over £20,000. If you're still using paper or spreadsheets, now is the time to move to cloud software. Our guide to Making Tax Digital explains the details.
Seven bookkeeping habits that keep your books in order
- Open a separate business bank account, so business and personal spending never mix
- Use cloud accounting software such as Xero, QuickBooks or Sage, with a live bank feed
- Record receipts as you go, by snapping a photo on your phone rather than saving them in a shoebox
- Reconcile your bank account weekly, or at least monthly, so errors are caught quickly
- Invoice promptly and chase overdue payments, because late invoices mean late cash
- Categorise transactions consistently, so your reports are meaningful
- Review a simple profit and loss report every month
Cash basis or traditional accounting?
The cash basis is now the standard way for sole traders and most partnerships to keep their records, recording income and expenses when money actually comes in or goes out. It's simpler, and you can choose traditional accounting instead if it suits your business better. Limited companies can't use the cash basis, so they use traditional (accruals) accounting, recording income and costs in the period they relate to, whether or not they've been paid yet.
What to do yourself, and what to outsource
Plenty of business owners handle the basics themselves, such as raising invoices and capturing receipts. The more technical parts, such as reconciliations, VAT, payroll and year-end adjustments, are where mistakes creep in. It's probably time to outsource your bookkeeping if:
- You're regularly weeks or months behind
- You've registered for VAT, or you're getting close to the £90,000 threshold
- You've started employing staff
- You're making decisions without up-to-date figures
- Bookkeeping is eating into your evenings and weekends
Fixed price bookkeeping
Outsourced bookkeeping doesn't have to mean unpredictable bills. Many accountants now offer fixed price bookkeeping as part of a monthly package, so you know exactly what you'll pay. Our limited company plan includes monthly bookkeeping and management reports, alongside year-end accounts and Corporation Tax, with your accounting software included. Read more about what fixed fee accountants include, or see our pricing.
Year-end bookkeeping
If your books are kept up to date through the year, year end becomes a quick review rather than a scramble. If they aren't, start with our year-end checklist, which walks through everything to tidy up before your accountant starts work. We help small businesses across Bristol and the UK keep their books in order all year round, so get in touch if you'd like to hand it over.
Frequently asked questions
What is the difference between bookkeeping and accounting?
Bookkeeping is the day-to-day recording of transactions. Accounting uses those records to prepare accounts and tax returns, and to analyse how the business is performing. Good bookkeeping makes accounting quicker and more accurate.
How long should a small business keep financial records?
Sole traders must keep records for at least 5 years after the 31 January deadline for the relevant tax year. Limited companies must keep them for 6 years from the end of the financial year they relate to.
Do I need accounting software for bookkeeping?
If you're VAT registered, or within Making Tax Digital for Income Tax, you need compatible software to keep digital records and submit returns. Even if you're not, cloud software such as Xero or QuickBooks makes bookkeeping much faster.
How often should I do my bookkeeping?
Little and often works best. Recording receipts as you go and reconciling your bank account weekly or monthly stops a backlog building, and gives you up-to-date figures to run the business.
