Bookkeeping means recording every pound your business takes in and pays out. That is the short answer. A bookkeeper keeps that record up to date. If you run a UK business, the law says you must keep those records.
HMRC can fine a limited company £3,000 for not keeping proper accounting records. Directors can also lose the right to run a company. So this is more than admin. It carries real penalties.
This guide explains what bookkeeping is and what a bookkeeper does. It covers the tasks, the two recording methods and the records HMRC wants. It is for owners new to all this.
Quick answer
Bookkeeping is the recording of your business transactions. Every UK business has to do it, including sole traders and landlords. You can do it yourself, use software or pay someone. Poor records cost you money in tax and HMRC trouble.
What is bookkeeping?
Bookkeeping is the process of recording every financial transaction in your business. Sales, supplier bills, wages, bank fees and refunds all get logged. That record is called your books. HMRC and your accountant both work from what your books say.
The word comes from the ledger books traders kept by hand. Most UK businesses now use software or a spreadsheet. That has not changed. Write down what moves, and keep the proof.
Your books have to show three things:
- money that came in, and where it came from
- money that went out, and what it paid for
- what you owe suppliers, and what customers owe you
Get those three right and the rest follows. Get them wrong and your tax return is wrong too.
Say you run a small café. You take £820 in card sales on Saturday. You pay a £310 supplier bill on Monday. You draw £50 from petty cash for milk. Logging those three lines is bookkeeping. There is nothing more complicated behind the word.
What does a bookkeeper do day to day?
A bookkeeper logs your sales and costs as they happen. They match each line to the bank statement. They raise invoices, chase late payers and pay supplier bills. At month end they hand you a short set of reports.
The job breaks down like this:
- Recording income and costs. Every sale, bill and payment gets a date, an amount and a category.
- Sales invoicing. They raise the invoice, send it and log it as money owed to you.
- Chasing payment. They track which invoices are overdue and by how many days.
- Paying suppliers. They log each bill when it arrives and flag the due date.
- Bank reconciliation. They match your books line by line against the bank statement.
- Filing receipts. Every claim needs proof, so receipts get stored against the transaction.
- VAT records. They record VAT on sales and costs so the return adds up.
- Payroll data. They pass hours, pay and deductions through to whoever runs payroll.
- Month end reports. You get a profit and loss figure and a list of overdue debtors.
None of this needs an office visit any more. Providers of online bookkeeping services work straight from your bank feed and receipt photos.
Bank reconciliation matters most. It catches duplicate payments, missed sales and costs posted to the wrong category.
What does a bookkeeping month actually look like?
Bookkeeping runs on a rhythm, not one big deadline in January. Every week you log transactions, send invoices and chase late payers. Every month you check the bank, file receipts and read your reports. Every quarter you file VAT, and every year you close the books.
Most guides give you a task list. This is the cadence a small UK business usually settles into.
| When | What happens |
|---|---|
| Weekly | Log sales and costs. Send new invoices. Chase overdue payments. |
| Monthly | Bank reconciliation. File receipts. Read the profit and loss figure. |
| Quarterly | Check and submit the VAT return, if you’re VAT registered. |
| Yearly | Close the books. Hand a clean file to your accountant. |
The weekly habit saves money. A business that logs as it goes spends minutes each week. Waiting until January takes days. Catching up is always slower than keeping up.
Late records cost money in ways owners rarely see coming. Read more on the cost of poor bookkeeping before you let yours slip.
What records do you need to keep?
Keep anything that proves a number on your tax return. Sales invoices, till rolls, supplier bills, receipts, bank statements and VAT records all count. Sole traders keep them five years after the 31 January filing deadline. Limited companies keep them six years from the financial year end.
HMRC does not set a format. It sets a standard. Your records have to back up every figure you file.
Sole traders must keep records of income and expenses for Self Assessment. Hold them for at least five years after the 31 January deadline. There is no turnover threshold.
Companies face a harder rule. Directors must keep company and accounting records for six years. That runs from the end of the financial year they cover. HMRC can fine you £3,000 if you do not keep them. You can also lose the right to act as a director.
In practice, keep all of this:
- sales invoices, till rolls and cash records
- supplier bills and expense receipts
- bank and credit card statements
- VAT records, if you’re VAT registered
- payroll records, if you employ anyone
- stock counts at the year end, if you’re a company
Lost records are not the end of it. You tell HMRC the figures are estimated, but you will have to defend them if they ask.
Single entry or double entry: which method do you need?
Single entry logs each transaction once, like a simple cash book. It suits very small businesses with few transactions and no stock. Double entry logs each transaction twice, as a debit and a credit. It catches errors, and almost all software does it for you.
Single entry gives you a running total of money in and out. It cannot produce a balance sheet. It cannot flag a missing entry either. You only find the gap when someone goes looking.
Double entry always balances. Every debit has a matching credit. If the two sides do not agree, something is wrong. That built-in check is why most businesses use it.
You probably use double entry already without knowing. Cloud software records both sides in the background. You enter the invoice once. The software does the rest.
A limited company needs double entry in practice. Statutory accounts include a balance sheet. Single entry cannot produce one.
Cash basis or traditional accounting: when do you record it?
Cash basis records money when it actually moves in or out. You log a sale on the day the customer pays you. Traditional accounting records the sale on the invoice date instead. Cash basis is now the default method for most sole traders.
Cash basis became the default from the 2024 to 2025 tax year. You have to opt out if you want traditional accounting. Limited companies use traditional accounting and have no choice.
Cash basis is simpler. You pay tax only on money you’ve received. That helps when customers pay you late.
Traditional accounting shows the full year. It counts the sale even when the invoice is still unpaid.
Here is the difference in one example. You invoice a customer on 28 March. They pay on 30 April. Under cash basis, that sale lands in the new tax year. Under traditional accounting, it lands in the old one. Same money, different year, different tax bill.
Bookkeeping and accounting are not the same job
People use the two words as if they mean one thing. They do not. Bookkeeping records what happened. Accounting works out what it means and files it.
Your books are the raw material. Your accountant turns them into accounts, tax returns and advice. We’ve covered the difference between bookkeeping and accounting in full elsewhere. Read that one if you’re deciding who to hire first.
How do you actually do your bookkeeping?
You have three routes, and all three are legal. A spreadsheet works for a handful of transactions each month. Accounting software pulls in your bank feed and codes most lines. A bookkeeper does the whole job while you run the business.
A spreadsheet
Free, and fine while the business is tiny. You type every line yourself. Nothing checks your work for you.
A spreadsheet on its own cannot file under Making Tax Digital. You would need bridging software to send the figures across to HMRC.
Accounting software
Software connects to your bank and imports every transaction. It suggests a category for each line. You approve it or change it.
It handles double entry, VAT rates and reports on its own. It also stores digital records. Making Tax Digital expects exactly that.
VAT registered businesses already file through MTD software. Income Tax is moving the same way in stages. Check whether the rules have reached your income level yet.
A bookkeeper or a bookkeeping firm
You send the paperwork. They do the rest. Cost depends on how many transactions you have each month. Ask for a quote based on your bank volume, not a headline price.
Do you need to hire a bookkeeper?
Hire one when the recording starts eating your week. Software and one hour each Friday can hold a small business together. Once VAT, payroll or staff expenses arrive, that hour stops being enough. The sign is simple: you’re behind, and you keep staying behind.
You need no qualification to keep your own books. You can do it yourself. Plenty of owners do it well.
Paying someone else is a different matter. Paid bookkeepers count as accountancy service providers under the money laundering rules. They must sign up for anti-money laundering supervision. That comes from a professional body, or from HMRC directly. Trading without it breaks the law.
So ask one question before you hire anyone. Who supervises you for money laundering? A real answer names a body. The Institute of Certified Bookkeepers is on the official list. So are the AAT and the ACCA. No answer is your answer.
Ask two more things while you’re at it. What software do you use, and can I see it? Who covers my VAT deadline when you’re on holiday?
Getting started
Start with a business bank account, separate from your personal one. Companies must keep the two apart, and sole traders should anyway. Then pick your method and stick to one day a week.
The habit matters more than the tool. A tidy spreadsheet beats an unused software subscription every time.
You do not have to do any of it yourself. DASA’s bookkeeping service covers the weekly logging, the bank matching and the VAT figures. Tell us your transaction volume and how you take payments. Get a quote and we’ll send you our current pricing.
This article gives general information about bookkeeping for UK businesses. It’s not financial, tax or legal advice. Every business is different. Speak to a qualified accountant about your own situation.
Raqeeb Marzook is Manager at DASA Accountancy. He’s a qualified member of the ACCA. He has over five years advising UK small businesses, sole traders and company directors. His work covers bookkeeping, VAT, self assessment, payroll and business planning. He prepares articles from primary HMRC guidance. Found an error? Email info@dasaaccountancy.co.uk.
FAQs
What is bookkeeping?
Bookkeeping is the process of recording every financial transaction in your business. Sales, supplier bills, wages, bank fees and refunds all get logged. That record is called your books. HMRC and your accountant both work from what your books say.
What does a bookkeeper do?
A bookkeeper logs your sales and your costs as they happen. They match each line against your bank statement. They raise invoices, chase late payers and pay supplier bills. At month end they hand you a short set of reports.
Do sole traders need to do bookkeeping?
Yes. Sole traders must keep records of income and expenses for Self Assessment. Hold them for at least five years after the 31 January deadline. There is no minimum turnover below which the duty disappears.
How long do I need to keep my bookkeeping records?
Sole traders keep records five years after the 31 January filing deadline. Limited companies keep them six years from the end of the financial year. File a return over four years late and you keep the records 15 months after sending it.
Can I do my own bookkeeping without a qualification?
Yes. No qualification is needed to keep your own books. The rules change if you do bookkeeping for clients. Paid bookkeepers must register for anti-money laundering supervision with a professional body or with HMRC.
What is the difference between single entry and double entry bookkeeping?
Single entry logs each transaction once, like a cash book. Double entry logs it twice, as a debit and a credit. Double entry catches errors and produces a balance sheet. Almost all accounting software does double entry for you.