The short answer
Bookkeeping means recording every transaction your company makes so that your accounts, tax returns and VAT returns are accurate. A simple system uses a separate business bank account, cloud accounting software, a weekly routine for categorising transactions and a habit of saving every receipt as it arises.
Checked 26 October 2026. Rates for 2026/27.Key facts
| Fact | Detail |
|---|---|
| Records to keep | Sales, purchases, bank, payroll, assets, loans |
| Keep for | At least 6 years |
| Best routine | Weekly 20-minute review |
| Bank account | Separate company account |
| VAT-registered | Digital records under Making Tax Digital |
What bookkeeping is and why it matters
Bookkeeping is the day-to-day recording of your company’s financial transactions. Every sale, purchase, payment, receipt and transfer is captured in a ledger, so you can see where the money came from and where it went. Your accountant uses these records to produce the annual accounts, calculate Corporation Tax and prepare VAT returns, so the quality of your bookkeeping decides the quality of everything that follows.
Good bookkeeping also helps you run the business. You can see which customers pay late, which costs are growing and how much tax to set aside. It also protects you, because HMRC can ask to see supporting records for six years, and a company that cannot produce them risks penalties and unwelcome tax adjustments.
What records you must keep
UK companies must keep records showing and explaining all transactions. At a minimum, keep all sales invoices and receipts, purchase invoices and receipts, bank statements, payroll records, records of assets bought and sold, loan agreements, director’s loan account movements, and VAT records if you are registered. Keep contracts, agreements and correspondence that explain unusual transactions.
You do not need to keep paper copies if you have clear digital copies. Scanning a receipt or photographing it with your phone is acceptable, as long as the image is legible and stored safely. Keep the records for at least six years from the end of the accounting period to which they relate.
Separate business and personal money
The single most useful habit is to use a separate business bank account for all company income and spending. When company and personal money are mixed, bookkeeping becomes confusing, and some personal payments end up looking like business costs or the reverse. That can create tax errors and an overdrawn director’s loan account.
Pay all business costs from the company account where you can. If you pay something personally, record it as a payment on behalf of the company, so the company can reimburse you. A clear separation also makes it easier to prove to HMRC that expenses were genuinely for the business.
Choosing accounting software
For most small companies, cloud accounting software is the best way to do bookkeeping. Popular options include Xero, QuickBooks and FreeAgent, and each connects directly to your bank account, so transactions arrive automatically. You then categorise each one, match it to an invoice or receipt, and the software builds your profit and loss account, balance sheet and VAT return.
Choose a package that suits your size. Contractors with a few transactions a month need only a simple plan. Businesses with stock, multiple currencies or many customers may need more features. Many accountants offer software as part of a package, and they can also set up the categories correctly from the start.
A weekly 20-minute routine
Bookkeeping becomes painless when it is done little and often. Set aside twenty minutes each week and work through a short routine.
- Open your accounting software and review the new bank transactions.
2. Categorise each one, such as software, travel, advertising or client income.
3. Attach the receipt or invoice for each payment.
4. Match customer payments to the invoices you issued.
5. Chase any overdue invoices and note any bills due soon.
At the end of each month, reconcile the bank balance in the software to your bank statement. If the two match, your records are correct. If they do not, find the difference straight away, while it is still easy to trace.
Sales invoices and getting paid
Every sale needs an invoice with the right details. A UK invoice should show your company name, address and registration number, the customer’s name and address, a unique invoice number, the date, a description of the goods or services, the amount, VAT if applicable, and payment terms. If you are VAT-registered, include your VAT number.
Send invoices promptly and track them. Late payment is one of the biggest cash flow problems for small companies. Accounting software can send reminders automatically and show you an ageing report, so you can see which customers owe you money and for how long.
Handling receipts and expenses
Every expense needs a record. For card payments, a bank statement entry is not enough on its own, because it does not show what was bought or the VAT. Keep the receipt or supplier invoice, and attach it to the transaction in your software. A phone app that photographs the receipt and sends it to the system saves a lot of time.
When you pay something personally for the company, record it in the director’s loan account, and reimburse yourself with a bank transfer from the company. Keep a mileage log for business journeys, and a note of any home-working claims. These small records turn into tax savings and answers to HMRC questions.
Month-end and year-end tasks
Each month, reconcile the bank account, review unpaid invoices and check that all receipts are attached. If you are VAT-registered, review the VAT account before each quarterly return. At year end, make sure all invoices raised or received for the period are included, check the director’s loan balance, review fixed assets bought, and tell your accountant about any unusual transactions.
A tidy set of books at the year end can cut the time, and therefore the fee, for preparing accounts. It also gives you time to plan, such as making pension contributions or buying equipment before the year end.
When to hand bookkeeping to someone else
Many directors start by doing the bookkeeping themselves, then find that it takes time away from clients and income. If you spend more than a few hours a month on it, or if it keeps slipping, consider handing it to a bookkeeper or including it in your accountant’s package. The cost is often less than the value of the time you save.
If you keep your own books, make sure your accountant reviews them regularly, to catch mistakes early. A quarterly check is a good compromise between control and cost.
Common bookkeeping problems and fixes
Several problems appear again and again. Unreconciled bank accounts hide errors, so reconcile monthly. Missing receipts lead to disallowed expenses, so attach them as you go. Duplicated transactions arise when bank feeds and manual entries overlap, so check before adding. Uncategorised items pile up in a suspense account, which distorts profit, so clear them weekly. Personal spending slips into the company account, so move it to the director’s loan account straight away. A simple monthly checklist covering these five points keeps the books reliable and makes the year-end far faster.
What your accountant needs from your bookkeeping
When your accountant prepares your accounts, they rely on your bookkeeping being complete and consistent. They need all bank accounts reconciled, every invoice recorded, supporting documents available, the director’s loan account up to date and notes on any unusual items. If these are in order, the accounts can be prepared quickly, which keeps the fee low. If not, the accountant must spend time reconstructing records, which costs more and delays filing. A short quarterly review shared with your accountant is usually enough to keep everyone aligned and to catch mistakes while they are small.
The bottom line
Bookkeeping means recording every transaction your company makes so that your accounts, tax returns and VAT returns are accurate. If you would rather not do it alone, our fixed fees start at £45.83 + VAT a month.
Frequently asked questions
Do I need to do bookkeeping for a limited company?
Yes. UK companies must keep accurate records of all transactions. You can do it yourself, use software, or hire a bookkeeper or accountant.
How long must I keep bookkeeping records?
At least six years from the end of the accounting period to which they relate. HMRC can ask to see them during that time.
What is the best accounting software for a small limited company?
Xero, QuickBooks and FreeAgent are popular choices. The best one depends on your needs, your budget and whether your accountant prefers a particular package.
Can I keep records in a spreadsheet?
Yes, but if you are VAT-registered you must use software compatible with Making Tax Digital, which may include bridging software for spreadsheets. Cloud software is simpler for most businesses.
How often should I do my bookkeeping?
Weekly is ideal, and monthly is the minimum. The more often you do it, the less time each session takes and the fewer errors you will have to correct.
Is it worth paying a bookkeeper?
Often yes, if the time you spend on bookkeeping could be used earning income, or if it keeps slipping. A bookkeeper keeps the records accurate, so the accountant’s work is quicker and tax is correct.
This article is general information, not personal tax or financial advice. Rules and rates change, so check GOV.UK or speak to an accountant about your circumstances. Rates shown are for 2026/27, last checked November 2026.