Digital Records Under MTD: What You Must Keep and How to Stay Compliant

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) sets specific rules for keeping digital records and sending updates to HMRC. In short: you must record your self-employed and/or property income and expenses in compatible software, keep those records in a digital form, and submit quarterly updates plus a year-end return through the software.

This guide explains exactly what records for MTD you need, how digital record keeping works in practice, and the key steps to achieve MTD compliance without stress.

What counts as a “digital record” under MTD for ITSA?

Under HMRC’s MTD digital records rules, each transaction you record should capture:

• the amount (income or expense),

• the date it was received or incurred,

• the category (using the same categories you use for your Self Assessment figures, but this may not apply in all cases. It depends on your income level and income source type).

If you have more than one income source, keep things separate:

• one set of digital records for each sole trader business, and

• separate digital records for UK property and foreign property (they’re treated as distinct “businesses” in MTD for ITSA).

A note for landlords

HMRC treats property income as in scope for MTD for ITSA. For jointly-let property, each owner must keep their own digital records and send quarterly updates for their share of income and expenses.

Software: one product or spreadsheets + bridging?

HMRC allows two compliant routes:

• A single compatible software product

This records your transactions and sends your quarterly updates and final return. It’s the simplest day-to-day setup for most people.

• Multiple products (for example, a spreadsheet plus “bridging” software)

This is allowed, but the tools must be digitally linked – that means no re-typing figures once they’re in scope for an update. Acceptable links include linked cells, imports/exports (CSV/XML), or API connections between tools.

Important: once a record has been used in a quarterly update, manual copy/cut-and-paste is not allowed to move or amend it in other products. That’s because HMRC requires a clear digital link from the original record through to submission.

Practical tip: spreadsheets work, but maintaining digital links across multiple files and versions can add admin. Many businesses and landlords prefer one app so records, categories and submissions stay in one place.

Join the EasyInvoice Waiting List today to get early access, smart tools, and a smoother start to Making Tax Digital.

When to create records and send updates?

Create digital records during each update period and before you submit your quarterly update. Recording transactions as close to the actual date as possible keeps your numbers current and reduces end-of-quarter rush.

Typical MTD for ITSA schedule:

• Quarterly updates: four per tax year (standard deadlines are 7 August, 7 November, 7 February, 7 May).

• Year-end: after the tax year ends, you make any adjustments, complete an Annual submission (an annual summary of your income and expenses for each source, senf before your final declaration) for each business/property source, then file the Final Declaration by 31 January.

Record retention: how long to keep MTD-compliant records?

Keep your Income Tax records for at least 5 years after the 31 January filing deadline for the relevant tax year (keep longer if you filed late). This is in line with Self Assessment rules and lets HMRC check your records if needed. You should also retain the underlying documents (for example, invoices, bills and bank evidence), even if you store the totals digitally.

A quick VAT note (for context)

This article focuses on Income Tax. For VAT, HMRC requires VAT-registered businesses to keep specified records digitally and maintain digital links within “functional compatible software” (set out in VAT Notice 700/22). The broad ideas – digital records and digital links – are similar, but the VAT rules and return cycles are separate from Income Tax.

Voluntary sign-up: practise now with lower penalty risk

You don’t have to wait for mandation to start using MTD for ITSA. If you sign up voluntarily, you can test real submissions in a low-pressure way:

• there are no late-submission penalties for missed quarterly updates while you’re volunteering,

• but annual filing and payment rules still apply (file your annual return by 31 January and pay on time to avoid penalties/interest).

Compliance checklist (quick scan)

• Choose compatible software (or a spreadsheet plus bridging software) that meets HMRC’s rules.

• Record every transaction digitally with amount, date, category – and keep business and property sources separate.

• Capture transactions during the period and submit your quarterly updates by the due dates.

• Keep supporting documents and retain records for 5 years after the 31 January deadline.

Not mandated yet? Consider voluntary sign-up to build good habits and de-risk your first mandated year.

Join the EasyInvoice Waiting List today to get early access, smart tools, and a smoother start to Making Tax Digital.