UK Small Business Accounting & Record Keeping Guide 2026

Comprehensive financial management guide for UK small businesses and limited companies: Making Tax Digital (MTD) requirements, record-retention rules, cash basis versus accrual accounting, allowable expenses, digital record keeping and filing obligations.

1. MTD Compliance & Statutory Record Keeping Rules

UK businesses must keep adequate accounting and tax records appropriate to their legal structure and tax obligations. Limited companies also have statutory company-record and accounting requirements under the Companies Act 2006. Making Tax Digital (MTD) does not currently apply to every UK business or every tax. MTD for VAT applies to VAT-registered businesses subject to the VAT rules, while MTD for Income Tax is being introduced in stages for sole traders and landlords. From 6 April 2026, individuals with qualifying income from self-employment and property of more than £50,000 generally need to use MTD-compatible software for Income Tax, with the threshold reducing to more than £30,000 from April 2027 and more than £20,000 from April 2028, subject to exemptions and the detailed rules.

Accounting Requirement	Sole Trader Rule	Limited Company Rule
Record Retention	Self-employed individuals generally keep records for at least 5 years after the Self Assessment filing deadline	Companies generally keep accounting records for at least 6 years from the end of the relevant financial year, subject to specific statutory exceptions
Accounting Method	Cash basis may be available subject to the current eligibility rules; traditional accrual accounting is also available	Companies prepare accounts under the applicable accounting framework, such as UK GAAP/FRS 102 or the micro-entity framework where eligible
Digital Tax Compliance (MTD)	MTD for Income Tax starts from 6 April 2026 for qualifying income over £50,000, reducing to over £30,000 from April 2027 and over £20,000 from April 2028	MTD for VAT applies where the VAT rules require it; MTD for Corporation Tax is not currently a general mandatory filing regime

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Key Takeaways

Limited companies generally keep accounting records for at least 6 years from the end of the relevant financial year, subject to statutory exceptions.
Self-employed individuals generally keep records for at least 5 years after the Self Assessment filing deadline.
MTD applies to specific taxes and taxpayer groups rather than automatically applying to every UK business.
MTD for Income Tax begins on 6 April 2026 for qualifying income over £50,000, with further thresholds from April 2027 and April 2028.
Cash basis and accrual accounting have different eligibility and recognition rules; the appropriate method depends on the business and tax/accounting framework.
Business expenses generally need to satisfy the relevant wholly-and-exclusively or other applicable tax rules to be deductible.

Related UK Business & Corporate Guides

UK Corporation Tax 25% Rates & Marginal Relief Guide →UK Sole Trader vs Limited Company Tax & Liability Guide →

Frequently Asked Questions (6 Interlinked FAQs)

A company generally needs to keep its accounting records for at least 6 years from the end of the relevant financial year, although specific statutory rules can require longer retention in some circumstances.

From 6 April 2026, sole traders and landlords generally need to use MTD for Income Tax if their qualifying self-employment and property income is more than £50,000. The threshold reduces to more than £30,000 from April 2027 and more than £20,000 from April 2028, subject to exemptions.

Cash basis generally recognises income and expenses when money is received or paid, while accrual accounting generally recognises income and expenses when they are earned or incurred. The available method depends on the applicable rules.

A company may use the micro-entity accounting regime if it meets the statutory eligibility requirements for the relevant accounting period. The applicable size thresholds should be checked for the period being reported.

A qualifying business expense generally needs to satisfy the applicable tax rules, including the wholly-and-exclusively test where relevant. Common examples can include genuine business software, professional fees, office costs and employee expenses.

Companies House can impose late-filing penalties and persistent non-compliance can lead to enforcement action, including compulsory strike-off proceedings. The penalty depends on how late the accounts are filed and whether the company is private or public.