If you are a sole trader or a landlord in the UK, good news for you. Making Tax Digital is changing how you keep tax records. You may need to keep digital records for Making Tax Digital using compatible software and submit information to HM Revenue and Customs (HMRC).
Keeping digital records for Making Tax Digital (MTD) simply means storing your business income, expenses, and VAT information in a digital format that HMRC can accept. This blog explains the MTD record-keeping requirements for 2026 and how you can keep records with Making Tax Digital-compatible software.
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What Does Keeping Digital Records for Making Tax Digital Mean?
For MTD for Income Tax, digital records are relevant income and expense records that are created and stored using accounting software. You must keep digital records for relevant self-employment income and expenses, UK property income and expenses, and foreign property income and expenses, where applicable.
When you keep digital records for Making Tax Digital, your records should include details such as the amount, date, and category of each transaction. Simply storing receipts or invoices digitally is not enough. The relevant financial information must be recorded digitally using compatible software.
Why Does Making Tax Digital Matter?
Making Tax Digital is important because it helps you keep accurate digital records and submit information to HMRC electronically. This reduces manual errors and makes tax reporting more organised.
HMRC’s long-term plan is to move the entire UK tax system online. The goal is simple: fewer errors, faster filing, and a clearer picture of your tax position throughout the year rather than one mad rush at the end.
MTD for Income Tax applies from 6 April 2026 to UK landlords and sole traders with qualifying income over £50,000. The threshold reduces to over £30,000 from April 2027 and over £20,000 from April 2028. When it comes to MTD for VAT, it already applies to VAT-registered businesses.
How to Keep Digital Records for MTD?
To keep digital records for Making Tax Digital, you must use MTD-compatible software. The exact records depend on whether you are using MTD for VAT or MTD for Income Tax.
For MTD for VAT, digital records include details such as:
- VAT on sales
- VAT on purchases
- Time of supply
- Value of the supply
- VAT rate
For MTD for Income Tax, you need to keep digital records of relevant self-employment or property income and expenses.
Additionally, if you use more than one software product, the relevant information must be digitally linked where required by the MTD rules.
Can I Use a Spreadsheet for MTD?
Yes, you can use a spreadsheet for MTD, but with conditions. The spreadsheet alone cannot meet the submission requirement. However, if you use a spreadsheet alongside bridging software, it becomes compliant.
You will need compatible bridging software to connect your spreadsheet records with HMRC’s systems. It is compatible and submits them digitally, creating the required digital link. Also, you can keep digital records for Making Tax Digital. Several providers in the UK offer bridging tools, and many are low-cost or even free for basic use.
So if you are not ready to move to full accounting software, here is a practical route:
You keep your records in a well-structured spreadsheet, income on one tab, expenses on another, VAT summary on a third. You then use bridging software to pull those figures and file directly to HMRC. The digital link is maintained, and you stay compliant.
Do You Need to Upload Receipts for Making Tax Digital?
Now that you know how to keep digital records for Making Tax Digital, let’s understand whether you need to upload receipts or keep them as evidence.
This is one of the most common questions small business owners ask, and the honest answer is that HMRC does not require you to upload receipts as part of your MTD submission.
What HMRC cares about is that your digital records contain the correct transactional data. The receipt itself is supporting evidence. You are still required to keep that evidence for the required retention period in case HMRC needs to check your records.
Where uploading receipts becomes useful is within your own accounting software. Apps like Dext, AutoEntry, or even the built-in receipt capture in QuickBooks or Xero let you photograph a receipt and have it automatically matched to a transaction in your books.
Using software to keep digital records for Making Tax Digital is a genuinely good habit, as it eliminates the shoebox of paper receipts at year-end. Also, it speeds up your bookkeeping dramatically. It gives your accountant everything they need without back-and-forth emails and protects you in the event of an HMRC enquiry.
So while uploads are not mandatory for MTD compliance, they are a smart practice for any business owner who wants to stay organised.
Do I Need to Keep Digital Records for HMRC?
If you fall within the MTD thresholds, which will apply to a growing number of self-employed people and landlords over the next two years, then yes, keeping digital records for Making Tax Digital is a legal requirement, not a suggestion.
Even outside of MTD, HMRC expects all businesses to maintain accurate records. The difference MTD introduces is the format those records must be kept in and how they must be submitted.
Here is a quick summary of who needs to act and when:
MTD for VAT: Already live for all VAT-registered businesses. If you are VAT-registered, you must keep digital VAT records and submit via Making Tax Digital compatible software now.
MTD for Income Tax (ITSA): From April 2026 for self-employed and landlords with qualifying income over £50,000. From April 2027, for those earning over £30,000, and £20,000 from 6 April 2028.
MTD for Corporation Tax: If you are a micro entity or a small limited company director paying yourself through dividends and salary, MTD for Corporation Tax may affect you. Getting your records in order now is the smartest move you can make.
What Software Should I Use to Keep Digital Records for Making Tax Digital?
If you need to follow MTD for Income Tax, you must use compatible software to create and keep your digital records, send quarterly updates to HMRC, and submit your tax return. HMRC offers a software finder. It allows you to check which products are compatible with MTD for Income Tax.
You can use accounting software to keep digital records for Making Tax Digital. Additionally, you can use a spreadsheet and compatible bridging software to submit the required information to HMRC.
HMRC maintains an approved list of MTD-compatible software on their website. The most widely used options in the UK for small businesses and micro entities are:
- Xero
- FreeAgent
- QuickBooks Online
- Wave
- Sage Accounting
What Counts as a Digital Record Under MTD Rules?
HMRC is specific about what needs to be captured. For MTD for VAT, each transaction record must include the time of supply, the value of the supply, and the rate of VAT charged. For MTD for Income Tax, your records need to capture all business income and expenses in a way that allows you to produce quarterly summary figures.
A photograph, scan or PDF of a paper record can be useful as supporting evidence, but simply storing it digitally does not necessarily create the digital record required for MTD.
What Happens If I Don’t Keep Digital Records for Making Tax Digital?
If you are required to follow MTD, you must keep the required digital records and send the relevant updates to HMRC.
Income Tax has a points-based penalty system for MTD. But HMRC will not penalise points for late quarterly updates in the 2026/27 tax year. A penalty point can be received for missing a quarterly update deadline from 2027/28. If you do reach the relevant threshold, there is a £200 financial penalty.
Keeping your records up to date also helps you maintain an accurate view of your income and expenses. Your quarterly updates provide HMRC with summaries of your business income and expenses. Therefore, accurate digital records are essential for making the required submissions.
Can My Accountant Keep Digital Records on My Behalf?
Yes, your accountant can manage and keep digital records for Making Tax Digital. Many micro entity business owners hand this task to their accountant or bookkeeper entirely, and HMRC allows this. Your accountant can use accounting software under your HMRC credentials and manage submissions on your behalf through an agent relationship.
This is a common arrangement, particularly for limited company directors who want to focus on running their business rather than managing software. Your accountant will need to be authorised as your agent within your HMRC online account, which is a straightforward process that they can guide you through.
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The Bottom Line
If you feel overwhelmed by MTD, you are not alone. Many micro-entity owners and self-employed people may not have formal accounting training, so HMRC’s MTD requirements can initially feel unfamiliar.
Once you have a working digital system in place, the day-to-day effort is minimal. If you fall within MTD requirements, you must keep digital records for Making Tax Digital.
Choose compatible software, set up your digital records, and start by accurately recording and categorising your recent income and expenses.
If you would rather have someone take this off your plate completely, we work with micro entities and small business owners across the UK every day. At Micro Entity Accounts, we offer VAT Returns, accounts filing, payroll, bookkeeping, and other tax and accounting services.
Explore our services on our sitemap and get in touch to find out how we can help you stay compliant without the headache.
Disclaimer: All the information provided in this article is general in nature; it does not intend to disregard any professional advice.
