Receipt Management

Every business expense needs a receipt or other supporting document. Without one, HMRC can disallow the deduction if they enquire into your records. Yet receipt management is one of the tasks most commonly neglected by small business owners – a shoebox of crumpled paper is not a filing system.

Getting receipt management right is straightforward once you set up a system and stick to it.

What counts as a receipt

A valid receipt for HMRC purposes must show:

• Date of the transaction
• Supplier name and address
• Description of the goods or services
• Amount paid (including VAT if applicable)
• VAT registration number of the supplier (if you are reclaiming input VAT)

For expenses under £25, a simplified VAT invoice is acceptable – it does not need to show your business name or address. For amounts over £250, you need a full VAT invoice showing both parties’ details.

What you need to keep

HMRC requires you to keep records of all business income and expenses. For expenses, that means keeping:

• Till receipts from shops and suppliers
• Invoices from suppliers and service providers
• Bank and credit card statements showing business transactions
• Mileage logs for vehicle use claims
• Petty cash records with supporting vouchers

Bank statements alone are not always sufficient. HMRC may want to see the underlying receipt or invoice to verify what the payment was for, especially for larger or unusual expenses.

How long to keep receipts

The retention period depends on your business structure:

For more on retention periods across all types of records, see our guide on how long to keep accounting records.

In practice, keeping records for 6 years covers most situations. If HMRC suspects fraud, they can go back up to 20 years, so retaining records longer is prudent if there is any uncertainty.

Digital receipts are valid

HMRC accepts digital copies of receipts as valid evidence, provided the digital copy is a clear and accurate reproduction of the original. You do not need to keep the paper original once you have a good digital copy.

This is a significant change from earlier practice and aligns with the Making Tax Digital programme. The key requirements for digital copies are:

• The image must be legible – all details clearly visible
• The copy must be unaltered – no editing or cropping that removes information
• You must be able to retrieve it when needed

Most modern accounting software includes a receipt scanning feature that captures an image, extracts the key data (date, amount, supplier, VAT) and attaches the image to the corresponding transaction. This is far more reliable than keeping paper receipts that fade over time.

Setting up a receipt management system

For sole traders and freelancers

A simple system works well for smaller businesses:

1. Photograph every receipt immediately using your phone or a dedicated scanning app
2. Email receipts – forward digital receipts to a dedicated email folder or directly into your accounting software
3. Categorise as you go – assign each receipt to an expense category (travel, office supplies, professional fees)
4. Reconcile weekly – match receipts to bank transactions to catch anything missing

For limited companies

Companies with more transactions or multiple people incurring expenses need a more structured approach:

1. Set an expense policy – define what can be expensed, spending limits and approval requirements
2. Use expense management software – employees photograph receipts and submit claims digitally
3. Require receipts for all claims – no receipt, no reimbursement
4. Integrate with your accounting software – approved expenses should flow directly into the books
5. Review monthly – check for duplicates, missing receipts and policy compliance

Dealing with lost receipts

Receipts get lost. When that happens:

• Request a duplicate from the supplier – most can reissue an invoice or receipt
• Use bank or credit card statements as supporting evidence – this is acceptable for smaller amounts, though HMRC prefers the actual receipt
• Write a contemporaneous note – record the date, amount, supplier and business purpose while you still remember the details

If you regularly lose receipts, it is a sign your system needs improving. The habit of photographing receipts at the point of purchase eliminates this problem almost entirely.

VAT and receipts

If your business is VAT-registered, receipt management becomes even more important. To reclaim input VAT on purchases, you must hold a valid VAT invoice from the supplier. Without it, HMRC can deny the VAT reclaim.

Common VAT receipt issues:

• Till receipts without a VAT number – you cannot reclaim VAT without the supplier’s VAT registration number
• Pro forma invoices – these are not valid for VAT reclaims; you need the actual invoice
• Foreign supplier receipts – different rules apply for goods and services from overseas; reverse charge VAT may be relevant
• Mixed-use purchases – if an item is partly personal and partly business, you can only reclaim the business proportion of the VAT

For detailed guidance on VAT bookkeeping, see our dedicated guide.

Expense categories to track

Organising your receipts by category makes expense tracking and tax return preparation much easier. Common categories include:

Common receipt management mistakes

• Keeping paper only – paper fades, gets lost and is hard to search; go digital
• Batching at year end – processing a year’s worth of receipts in one go leads to errors and missed deductions
• Not matching to bank transactions – a receipt without a corresponding bank entry (or vice versa) indicates an error
• Ignoring small expenses – petty cash and minor purchases add up and are legitimate deductions
• Discarding receipts after entry – keep them for the full retention period, even after they are in your system