How to Keep Cash Records for Your Business in the UK – HMRC & Making Tax Digital Explained

Cash record

In the UK, accurate record-keeping is more than just good practice—it’s a legal requirement. Whether you’re a sole trader, partnership, or limited company, HMRC (HM Revenue & Customs) expects you to keep detailed financial records, including cash transactions.

With the rollout of Making Tax Digital (MTD), the way businesses keep and submit records is changing too. Cash-heavy businesses—such as retailers, hospitality, and tradespeople—need to pay particular attention to ensure compliance.

This guide explains how to keep cash records, what HMRC requires, and how MTD impacts businesses dealing with cash.

Why Cash Records Matter

• Stay compliant with HMRC rules

• File accurate tax returns and avoid penalties

• Understand your cash flow for better decision-making

• Provide evidence in an audit if HMRC reviews your business

• Build credibility with lenders and investors

How to Keep Cash Records for Your Business in the UK

1. Keep a Cash Book

Record all cash inflows and outflows, including:

• Date of the transaction

• Payer or payee

• Amount received or paid

• Running balance

This can be maintained on paper, in a spreadsheet, or in accounting software.

2. Issue and Store Receipts & Invoices

• Provide receipts for every cash sale.

• Keep supplier invoices and expense receipts.

• Store both paper and digital copies securely.

3. Reconcile Regularly

Check that your recorded cash matches:

• Physical cash in your till or cash box

• Your bank deposits

• Your accounting software records

4. Separate Business and Personal Money

Open a dedicated business bank account and never mix personal cash with business funds.

5. Use Accounting Software

Digital tools such as QuickBooks simplify record-keeping and help with HMRC compliance.

HMRC’s Legal Requirements for Record-Keeping

According to HMRC, businesses must:

• Record all income and expenses (including every cash transaction).

• Retain records for at least 6 years (invoices, receipts, bank statements, till rolls, and petty cash notes).

• Provide records if requested by HMRC during an inspection.

• Keep records accurate and complete – missing or altered records can lead to penalties.

For cash businesses, HMRC is strict: all takings (even those not banked) must be recorded. Undeclared “cash-in-hand” payments are treated as tax evasion, which carries heavy fines or even prosecution.

Making Tax Digital (MTD) and Cash Records

Making Tax Digital is HMRC’s initiative to modernise tax reporting by requiring businesses to keep and submit records digitally.

Here’s how MTD affects cash records:

1. VAT-Registered Businesses

• All VAT-registered businesses must keep digital VAT records.

• VAT returns must be filed through MTD-compatible software.

• Cash transactions must be logged digitally, not just on paper.

2. Income Tax (MTD for ITSA)

• From April 2026, self-employed people and landlords earning over £50,000 must submit digital quarterly updates to HMRC.

• From April 2027, this applies to those earning over £30,000.

• Paper cash books alone will no longer be compliant—records must be digital.

3. Digital Links Requirement

• Once cash data is entered into a digital system (spreadsheet or software), it must be transferred electronically, not re-typed manually.

• This ensures data accuracy and reduces risk of errors or fraud.

Best Practices to Stay HMRC & MTD Compliant

• Use a daily cash sheet and enter figures into your accounting software.

• Reconcile till reports and bank deposits against recorded sales.

• Keep digital copies of receipts and invoices (scan or photograph them).

• Train staff to follow cash handling and recording procedures.

• Choose MTD-approved accounting software to simplify compliance.

Conclusion

Cash records are the backbone of business accounting in the UK. HMRC requires that all businesses keep accurate and complete records for at least six years, and with Making Tax Digital, those records must now be stored in a digital format.

By maintaining a proper cash book, reconciling regularly, and adopting accounting software, you’ll not only stay HMRC-compliant but also gain clearer insights into your business finances.

Being organised today helps you avoid penalties tomorrow.