What digital records do I need to keep for MTD?

Under MTD for Income Tax, you must keep digital records of all business income and expenses. This includes: the date, amount, and category of each transaction; the name of the customer or supplier; and for income, whether it relates to goods or services. Records must be kept in MTD-compatible software — spreadsheets alone are not sufficient unless they connect to HMRC via an API-enabled bridging tool.

Can I use a spreadsheet for MTD record keeping?

You can use a spreadsheet to record transactions, but it must be linked to MTD-compatible software that can submit quarterly updates to HMRC via API. A standalone Excel or Google Sheets file without API connectivity does not meet MTD requirements. Bridging software connects your spreadsheet to HMRC's systems.

How long must I keep MTD records?

You must keep digital records for at least 5 years after the 31 January submission deadline for the relevant tax year. For example, records for the 2026/27 tax year must be kept until at least 31 January 2033. HMRC can request these records during an enquiry or compliance check.

Do I need to keep paper receipts under MTD?

HMRC does not require you to keep paper receipts if you have an adequate digital record. However, having the original receipt (or a photo/scan of it) provides stronger evidence if HMRC queries a claim. Many MTD apps include receipt scanning features that attach images to digital records.

What happens if my MTD records are incomplete?

HMRC can charge a penalty of up to £3,000 for failure to keep adequate records. In practice, the penalty depends on the severity and whether it affected your tax liability. If HMRC finds gaps during an enquiry, they may estimate your income higher, resulting in more tax to pay.

← Back to blog

MTD Digital Records: Exactly What You Need to Keep from April 2026

Updated: 13 March 2026 · For sole traders and self-employed earning over £50,000

From 6 April 2026, Making Tax Digital for Income Tax requires you to keep digital records and submit quarterly updates to HMRC. But what exactly counts as a "digital record"? What do you actually need to record? And what happens if you get it wrong?

This guide gives you the practical answer — no jargon, no waffle.

⏰ Does this apply to you? MTD for Income Tax applies from April 2026 if your self-employment or property income exceeded £50,000 in any of the last 3 tax years. From April 2027, the threshold drops to £30,000. Check your MTD readiness →

What "digital records" actually means

Under MTD, "digital" means your records must be stored in software that can connect to HMRC's systems via API. This is the key distinction — it's not enough to type things into a Word document or a basic spreadsheet.

Your records must be:

Stored electronically — in compatible software
Connected to HMRC — able to submit quarterly updates via API
Transaction-level — individual entries, not just quarterly totals
Categorised — using HMRC's standard categories

The records you must keep

🔴 Mandatory records for every transaction:

Date of the transaction
Amount (in GBP)
Category — mapped to HMRC's standard categories (see below)

🔴 Additional mandatory records for income:

Name of the customer (or description if a cash sale)
Whether the income is from goods or services

🔴 Additional mandatory records for expenses:

Name of the supplier
Brief description of what was purchased

HMRC's expense categories

Your software needs to categorise expenses into HMRC's standard groups:

Category	Examples
Cost of goods sold	Materials, stock, subcontractor costs
Construction industry costs	CIS subcontractor payments
Staff costs	Salaries, wages, employer NIC, pensions
Premises costs	Rent, rates, utilities, insurance, use of home
Repairs and maintenance	Equipment repairs, property maintenance
Administrative costs	Phone, internet, software, postage, stationery
Advertising and marketing	Website, ads, business cards, sponsorship
Interest and bank charges	Business loan interest, bank fees, card charges
Travel costs	Mileage, public transport, parking, accommodation
Legal and professional	Accountant, solicitor, professional memberships
Other expenses	Anything not covered above

What software is acceptable?

✅ Acceptable for MTD:

MTD-compatible accounting software (FreeAgent, Xero, QuickBooks, Sage, etc.)
HMRC's free MTD software (basic, for simple affairs)
Spreadsheet + bridging software combination
Any software on HMRC's compatible software list

❌ NOT acceptable on their own:

Paper records or handwritten ledgers
Standalone spreadsheets (Excel/Google Sheets without bridging)
Word documents or PDFs
General note-taking apps
Your head (surprisingly common)

The spreadsheet question

Yes, you can continue using a spreadsheet — but only if it's connected to MTD-compatible bridging software. Here's how it works:

How spreadsheet + bridging works:

You record transactions in your spreadsheet (date, amount, category, customer/supplier)
Bridging software reads your spreadsheet data
The bridging software submits your quarterly update to HMRC via API

Popular bridging options include BTCSoftware, 123 Sheets, and Tax Filer. Costs typically £5-15/month.

For most people, using proper accounting software is simpler than maintaining a spreadsheet + bridging setup. But if you're comfortable with spreadsheets and don't want to change, bridging is a valid option.

Read our spreadsheet vs software comparison →

Quarterly updates — what you submit

Every quarter, you'll submit a summary of your income and expenses to HMRC. The deadlines are:

Quarter	Period	Submission deadline
Q1	6 April – 5 July	5 August
Q2	6 July – 5 October	5 November
Q3	6 October – 5 January	5 February
Q4	6 January – 5 April	5 May

After the 4th quarter, you'll also submit an End of Period Statement (EOPS) and a Final Declaration (replacing the annual tax return) by 31 January.

💡 The quarterly updates are NOT tax returns. They're summaries of your income and expenses. HMRC uses them to estimate your tax position throughout the year. Your actual tax liability is only finalised in the Final Declaration.

How long to keep records

Keep all digital records for at least 5 years after the 31 January submission deadline for the relevant tax year.

Tax year	Keep records until at least
2026/27	31 January 2033
2027/28	31 January 2034
2028/29	31 January 2035

Do you still need paper receipts?

HMRC doesn't require paper receipts if you have adequate digital records. However:

Photos/scans of receipts provide stronger evidence if HMRC queries a claim
Many MTD apps include receipt capture — snap a photo, it attaches to the transaction
For expenses over £50, having the receipt (digital or paper) is good practice
If you're ever investigated, receipts can be the difference between a claim being accepted or denied

Common mistakes to avoid

Recording monthly totals instead of individual transactions — MTD requires transaction-level detail
Mixing personal and business transactions — keep a separate business bank account if possible
Not categorising expenses correctly — HMRC's categories must be used
Forgetting to record cash transactions — all income must be recorded, including cash
Leaving record-keeping to the end of the quarter — record as you go, or at least weekly
Not backing up digital records — cloud storage or regular exports to avoid data loss

Penalties for poor record-keeping

HMRC can charge up to £3,000 for failure to keep adequate records. In practice:

First offence with no tax impact → likely a warning or suspended penalty
Repeated failures or significant tax shortfall → active penalty
If HMRC can't verify your income from records, they may estimate higher, meaning you pay more tax

Getting started — practical steps

Choose your software — compare MTD software options →
Set up your categories — match HMRC's standard list above
Connect to HMRC — authorise your software via Government Gateway
Start recording from 6 April 2026 — record every transaction as it happens
Submit Q1 by 5 August 2026 — your first quarterly update

Related guides

📦 Get MTD-Ready: The Complete Toolkit

Checklists, record-keeping templates, software comparison guide, and step-by-step setup instructions. Everything you need to be compliant by April 2026.

Get the MTD Readiness Toolkit — £14 →

Landolio helps UK freelancers and small businesses get paid and stay compliant. Home · Blog · Free tools