Digital Record Keeping for Making Tax Digital

Making Tax Digital (MTD) will take effect from 6 April 2026; for those impacted, this will mean a significant change in how you record and report your tax data to HMRC. 

Below, Tax Director, Liam Coulter, explains what tax records will need to be kept and how to send the relevant information to HMRC. 

What is Making Tax Digital (MTD)?

MTD is a new way to report income from self-employment and property to HMRC and will be introduced in phases from 6 April 2026. 

What is Digital Record Keeping?

If you fall under the threshold for MTD, you will have to keep digital records of the amount, category and date of income and expenses relating to your self-employment and/or property business in some form of software.   

Simply put, the term “digital records” refers to the actual information a business must store, it is the “digital link” which later transfers that data. 

If you currently use software (e.g. MS Excel) to record your income and expenses, you are already keeping a digital record.  However, you will need special software in order to transfer this information to HMRC via a digital link. 

The requirement to keep digital records does not mean that you will have to scan and store invoices and receipts digitally; you can continue to keep documents in paper form, but each individual transaction (not summaries) will need to be recorded and stored digitally. 

Optional simplified record keeping options will be available in some cases where income is below the VAT threshold (currently £90,000).  This means you will be able to use “three line accounts” for that income source – i.e. you can record each item of income and expense without having to allocate it to a specific category of income/expense.  Therefore, the total income and total expenses will need to be reported each quarter, with no detailed categorisation needed. 

What is a Digital Link?

A digital link is a data transfer or exchange within and between functional compatible software. Put simply, digital links enable software programmes to communicate with each other and HMRC, so your returns can be filed digitally. 

Examples of digital links include: 

• Emailing a spreadsheet that contains your digital records, for use in another software product. 

• Transferring digital records onto hardware such as a pen drive, flash drive, or memory stick, and physically giving this to someone else who imports the data into their software. 

• XML, CSV import and export, downloading and uploading files. 

MTD was introduced to help taxpayers file accurate returns using digital software. Manually copying and pasting data undoes the digital element of Making Tax Digital – i.e. any circumstance where you’re copying, pasting or typing information does not count as a digital link. 

Can I still use Spreadsheets for MTD?

Absolutely, as long as digital links are set up and used correctly. 

Excel itself isn’t compliant for MTD but it can still be used when paired with bridging software; the bridging software will enable you to send the excel information in a digital format to HMRC. 

We can provide you with a MTD compliant Excel template in order to record your usual income and expenses then all you need to do is send us the completed Excel sheet and we will handle the rest.  Alternatively, you can purchase bridging software that will enable you to digitally report the Excel information to HMRC yourself. 

What happens if I make a mistake in my digital records?

Digital records operate cumulatively – i.e. each one effectively provides a ‘year to date’ position up to the end of the quarter. 

Errors discovered in the digital record for one quarter must be corrected by amending the underlying digital record which can be done as part of the next quarterly update. 

If an error is discovered after filing the fourth quarterly update for a year, the digital record must first be updated. The figures previously submitted can then be corrected either by resubmitting the fourth quarterly update, or by adjusting the relevant figures when completing the digital tax return. 

Do I still need to keep all of my invoices and receipts?

Yes, the digital record keeping requirements are in addition to normal record keeping requirements. Digital records alone are not sufficient so you must ensure you have the original financial information (invoices, bank statements etc) from which the digital records were made. 

Our in-house Tax Director, Liam Coulter, can assist with MTD registration, complete MTD returns and provide help and guidance with the new rules. To find out more, please get in touch.