Digital record keeping for Making Tax Digital

A digital record is a record of an income or expense that is created and stored in software that works with Making Tax Digital for Income Tax. Each record needs three things: the amount, the date and a category. MTD uses the same categories as Self Assessment, so they will be familiar if you have filled in a return before.

A photo of a receipt on its own is not the digital record. The record is the amount, date and category held in your software or spreadsheet. The receipt is the original document behind it, which you keep as well.

You keep digital records for your self-employment and property income and expenses. You do not need digital records for other income, such as dividends or pensions, though you can add them to make your tax estimate more accurate.

Keep one set of records for each sole-trade business. All your UK properties form one UK property business, including your share of joint lets. For foreign property, keep records for each property, and they are combined into one foreign property business.

• Self-employment sales, takings and fees
• Self-employment expenses, such as stock, travel, office and financial costs
• Property income, including rent, premiums for the grant of a lease, reverse premiums and inducements
• Property expenses

Start keeping digital records from 6 April, the start of the tax year. If your accounting period ends on 31 March and you use calendar update periods, start from 1 April.

Each record must exist before the deadline for the update that covers it, or before you send that update if that is earlier. HMRC advises recording each transaction as close to the date it happens as possible.

If HMRC signs you up part way through the year, catch up your records from the start of the tax year. If you start a new business while you are already in MTD, digital records for it are only needed after the first tax return that includes it. HMRC’s example is a business started in May 2027 that needs digital records from 6 April 2029.

If a business has turnover of less than £90,000, HMRC allows what it calls simpler categorisation. A sole trader then only records whether each transaction is income or an expense, and the update sends total income and total expenses. The test is for each income source on its own.

Residential landlords under £90,000 must still record whether an expense is a restricted finance cost, such as mortgage interest. If turnover reaches £90,000, you must put all records for that source into full categories before your next update. If you are not sure you will stay under, use full categories from the start.

There are other easements. A retailer can record daily gross takings instead of each sale. A joint landlord can record one entry per income category for each update period, and one entry per expense category for the year.

If a cost is partly private, you have three options. Record only the business part, record the total with the business and private parts shown separately, or record the total and adjust the category total later.

For a payment that mixes capital and interest, such as a mortgage payment, record just the interest or record the full amount and adjust it before you finalise the year. If you are sure you will use simplified expenses, you do not need records of the actual costs. If you are not sure, record everything.

If someone pays you after taking off their own costs, ask them for the full amount before expenses. Then record the gross income and the expenses separately.

You can keep records in more than one product, for example a spreadsheet and MTD software. If you do, the records must be digitally linked. Once a record has been sent to HMRC in an update, you must not move it by hand.

Retyping figures into another cell or product, and copying and pasting, do not count as digital links. You do not need a link for a till or booking system, for software used only to submit your tax return, or between your records and another joint landlord’s records.

If you find a mistake during the tax year, correct the record. Because each update covers the year to date, the correction is included in your next quarterly update. You do not send the earlier update again.

If you find a mistake after your fourth update, you can either send the fourth update again or adjust the category total at year end. A tax return you have already submitted can be changed within 12 months of the deadline.

You still keep original records or supporting documents, such as invoices and bank statements, or copies of them. HMRC does not receive individual receipts or invoices in your quarterly updates.

Keep your digital records for at least 5 years after the 31 January submission deadline for the tax year. For the 2026 to 2027 tax year, that means until at least 31 January 2033. If you change software, you keep the old records for the same period.

A fictional dog walker records each payment and cost as it happens. Her turnover is well under £90,000, so she could simply mark each record as income or expense.

She adds categories anyway, so her records are ready if the business grows. At the end of the month her software totals the records for her.

Most record-keeping problems show up at the deadline, when there is least time to fix them. These are the usual causes.

A short weekly check of new records avoids most of them.

• Treating a folder of receipt photos as your digital records
• Retyping spreadsheet totals into MTD software
• Rebuilding a quarter from memory just before the deadline
• Recording rent net of an agent’s fees instead of gross rent and the fees separately
• Recording the whole mortgage payment as an expense
• Deleting old records when you change software

With SimpleTaxFlow you have two routes. Keep your spreadsheet as your digital records and upload totals for the tax year so far as a CSV file, or record income and expenses in Bookkeeping, one at a time or several together. Bookkeeping is free.

Spreadsheet upload covers self-employment and your own share of UK property. Joint owners can choose Whole property or My share in Bookkeeping. Either way, you check what HMRC will receive before each quarterly update, and the exact figures sent are saved with the date and time.

Tax rules can change and your circumstances matter. Use HMRC’s current guidance to confirm what applies to you.