Bookkeeping for Micro-Entities: What to Keep and for How Long

Bookkeeping is the quiet work that makes everything else in a small company possible. For a micro-entity, it does not need to be complicated: a handful of transactions a month, a single bank account, and a clear record of what came in and what went out. But it does need to be done, and done regularly, because the accounts, the Corporation Tax return and the VAT return all draw on the same records. A company that keeps its books up to date files on time; a company that leaves them until the year end pays for the delay in fees, penalties and stress.

Good bookkeeping for micro-entities starts with separating the company's money from the director's money. A business bank account is the simplest step, and it makes the records almost write themselves: every transaction appears on the statement, and the bookkeeping is the job of labelling each one — sales, expenses, director's loan, tax paid. Mixing personal spending into the company account is the single most common cause of messy books in a one-director company, and it turns a simple year end into a long reconciliation exercise.

The records a micro-entity needs to keep are straightforward. Sales invoices and receipts, purchase invoices and receipts, bank statements, payroll records where there are employees, and a note of any money the director puts in or takes out. Digital copies are fine, and most small companies now keep everything in a cloud accounting package or even a well-organised folder of scanned documents. The important thing is that each record can be found again: a receipt without a date or a supplier name is barely better than no receipt at all.

How long the records must be kept is a question directors ask often, and the answer depends on the record. Company records generally need to be kept for six years from the end of the financial year they relate to, and tax records for at least five years after the 31 January submission deadline for the relevant tax year. Keeping them longer costs nothing when they are digital, so the safe habit is to keep everything and delete nothing. The official guidance on keeping your pay and tax records sets out the periods that apply.

Common Bookkeeping Mistakes to Avoid

The most common bookkeeping mistakes in a micro-entity are easy to avoid once they are named. The first is doing nothing for eleven months and then trying to reconstruct a year from bank statements. The second is recording sales when the money arrives rather than when the invoice is raised, which misstates the profit for the year. The third is forgetting small cash expenses, which are deductible and add up over a year. The fourth is not reconciling the bank account at all, so errors and duplicate entries sit unnoticed until the accountant finds them.

A simple monthly routine prevents all of it: reconcile the bank account, file the month's invoices and receipts, chase any unpaid sales invoices, and check that the director's drawings are recorded. Thirty minutes a month is enough for most micro-entities, and it means the year-end accounts can be prepared from records that are already complete rather than assembled under deadline pressure.

Micro Entity Accounts handles bookkeeping for micro-entities, with fixed-fee accounts, Corporation Tax and Companies House filing handled in one place.