MTD Digital Records: What Counts and What Doesn't

Under Making Tax Digital for Income Tax, a digital record is an electronic entry for each business transaction showing its date, amount and category, kept in compatible software or a spreadsheet. Once a figure is digital, it must reach HMRC through digital links, never by being retyped.

Those two ideas — the digital record and the digital link — are the whole of the record-keeping side of MTD. The quarterly updates everyone talks about are simply summaries of those records. This guide explains what each idea means in practice, what does and does not count, and how to set up your records so the quarterly work takes an hour rather than a weekend.

Key takeaways

• Each business transaction needs a digital record with at least its date, amount and category.
• Records can live in accounting software or a spreadsheet linked to bridging software.
• Once data is digital, moving it onwards must be done by digital links, not by retyping.
• You still need supporting evidence, but not necessarily a scan of every receipt.
• Each self-employment and each property business needs its own records.

What a digital record is

For MTD for Income Tax, you record each business transaction electronically. The essential details are the date, the amount, and the category it falls into, such as sales, cost of goods, travel or premises costs. Property businesses do the same for rent received and property expenses.

HMRC's overview of what is required is on GOV.UK's using MTD for Income Tax guidance. There are some simplifications for particular types of transaction, so check the detail for your own business rather than assuming.

What a digital link is

If your records sit in one program and your submission is made from another, the data has to move between them electronically. An import, a file export, an API connection or a formula linking two spreadsheets all count. Reading a total off one screen and typing it into another does not, even if the number is right.

The simplest way to meet the rule is to keep records and submit from the same piece of software. HMRC keeps a list of software compatible with MTD for Income Tax, including bridging tools for people who want to stay with a spreadsheet.

What counts and what does not

Receipts and supporting evidence

A common worry is that MTD means scanning every receipt. The requirement is a digital record of each transaction; it is not, in general, a requirement to hold a digital image of every document. You still need to keep evidence that supports your figures, in the same way as under Self Assessment.

In practice, most people find that photographing receipts into their software as they go is the least effort overall, because it makes categorising easier and means nothing is lost at the end of the quarter.

Step by step: set up your records

1. Confirm when you join MTD using the qualifying income test.
2. Choose compatible software, or a spreadsheet plus compatible bridging software.
3. Open a separate bank account for each business if you can; it makes records far cleaner.
4. Connect the bank feed, or set up a regular import of statements.
5. Set up categories that match HMRC's headings.
6. Record and categorise transactions weekly or monthly, not quarterly.
7. Keep supporting evidence, photographed or filed, for every entry.
8. Before each quarterly update, check that every bank line has a matching record.

Worked example (illustrative example)

"Nadia", an invented illustrative example, is a self-employed hairdresser who also lets a small flat. Her qualifying income was over £50,000 in 2024/25, so she joined MTD on 6 April 2026.

Before joining, she kept a spreadsheet and once a year typed the totals into her tax return. Under MTD, the spreadsheet itself can stay, but she added bridging software that reads it directly, so no totals are retyped. She set up two separate tabs, one for the salon and one for the flat, because each business needs its own records and its own quarterly update.

Every Sunday evening she spends twenty minutes entering the week's transactions and photographing receipts. When each quarter ends, the update takes her under an hour. Nadia and her figures are invented to show a workable setup, not a recommendation of any particular product.

Common mistakes

• Typing totals between programs. Correct numbers entered by hand still break the digital link rules.
• Keeping records on paper and digitising at quarter end. Records need to be digital as the quarter goes on.
• Mixing two businesses in one set of records. Rental and trading records must be kept separately.
• Using bank statements as the only record. Transactions still need to be categorised.
• Throwing away evidence. Digital records do not replace the need to support your figures.

Getting it handled

Our MTD compliance service starts from £49 per month and includes setting up compliant records. If you would rather not keep the records yourself, our bookkeeping service starts from £150 per month. For the submission side, see MTD quarterly update deadlines, and to check when you join, read are you in, and from when.

Want your records set up properly before your next quarter? Talk to us or see our pricing.