MTD Digital Record Keeping —
Exactly What HMRC Requires and How to Do It
Making Tax Digital requires you to keep digital records of your income and expenses — but HMRC is specific about what "digital" means and what records are actually required. You do not need to scan every receipt or photograph every transaction. Here is exactly what the law requires, with worked examples for sole traders and landlords.
What Records HMRC Requires
Under MTD, you must keep the following digitally in HMRC-approved software:
| Record type | What it must contain | How long to keep |
|---|---|---|
| Sales / income records | Date, amount, customer (or "cash sale"), description | 5 years after 31 Jan filing deadline |
| Purchase / expense records | Date, amount, supplier, category | 5 years after 31 Jan filing deadline |
| Bank statements | Digital copy or bank feed connection | 5 years |
| Mileage log (if claiming mileage) | Date, purpose, miles, start/end point | 5 years |
| Asset purchases (capital items) | Date, cost, description, business use % | Life of asset + 5 years |
HMRC does not require original paper receipts if you have a digital record in your software. A photo or scan stored in software (Dext, Hubdoc, or built-in receipt capture) satisfies the digital record requirement.
What HMRC Does NOT Require
- Copies of every customer invoice (just the income total for the transaction)
- Paper receipts (digital records replace paper)
- A separate spreadsheet (software replaces spreadsheets — though bridging software + spreadsheet is permitted)
- Real-time submission of every transaction (you submit quarterly summaries, not individual transactions)
Example: Sole Trader Digital Records for One Month
Below is what a plumber's digital records look like in FreeAgent for April 2026:
| Date | Type | Description | Amount | Category |
|---|---|---|---|---|
| 03 Apr | Income | Invoice #101, bathroom refit | £3,200 | Self-employment income |
| 05 Apr | Income | Cash, boiler repair (receipt issued) | £480 | Self-employment income |
| 06 Apr | Expense | Travis Perkins, copper pipe | £287 | Materials |
| 08 Apr | Expense | Fuel. BP Garage (photo receipt in Dext) | £74 | Motor expenses |
| 15 Apr | Expense | Van insurance quarterly | £280 | Motor insurance |
| 22 Apr | Income | Invoice #102, emergency call-out | £660 | Self-employment income |
| 28 Apr | Expense | Phone bill (80% business) | £32 | Office costs |
At quarter end, the software totals these automatically and submits the category totals to HMRC — not the individual lines. HMRC sees: Income £4,340 | Materials £287 | Motor £354 | Office £32.
Example: Landlord Digital Records
| Date | Type | Description | Amount | Category |
|---|---|---|---|---|
| 01 Apr | Income | Rent received, 14 Oak Street | £1,100 | UK property income |
| 01 Apr | Income | Rent received, 22 Elm Ave | £900 | UK property income |
| 12 Apr | Expense | Letting agent fee. April | £200 | Professional fees |
| 18 Apr | Expense | Boiler service, 14 Oak Street | £120 | Repairs and maintenance |
| 25 Apr | Expense | Buildings insurance, annual (1/12) | £95 | Insurance |
| 28 Apr | Expense | Mortgage interest. Barclays | £620 | Loan interest |
Bank Feeds — The Easiest Way to Stay Compliant
Most HMRC-approved software connects directly to your business bank account via Open Banking (bank feed). Every transaction is automatically imported into your software — you simply categorise each one. This eliminates manual data entry and ensures no transactions are missed.
FreeAgent, QuickBooks, Xero and Sage all support bank feeds for the major UK banks. Some banks (HSBC, Lloyds, Barclays, NatWest, Starling, Monzo) connect in seconds via Open Banking. If your bank does not support automatic feeds, you can import bank statements as CSV files.
Cash Income — Special Rules
Cash income must be recorded digitally like any other income. You must note the date, approximate description, and amount. HMRC does not require the customer's name for cash sales below £250, but above that threshold a customer identifier is good practice. Always issue a receipt for cash jobs — it protects you if HMRC queries your income figures.
Frequently Asked Questions
Can I use a spreadsheet for MTD digital records?
Only with bridging software. A spreadsheet alone is not MTD-compliant because it cannot connect to HMRC. If you want to keep records in Excel or Google Sheets, you need bridging software that reads your spreadsheet and submits quarterly updates to HMRC via API.
Do I need a separate business bank account for MTD?
HMRC does not legally require a separate business bank account for sole traders. However, mixing business and personal transactions makes record keeping extremely difficult and increases the risk of errors. A separate account (Monzo Business, Starling Business, or a traditional business account) is strongly recommended.
What happens if I lose a receipt?
HMRC requires you to keep records but is pragmatic about lost receipts for minor expenses. For significant expenses, try to obtain a duplicate from the supplier. The key is that the expense was genuine and correctly categorised — if queried, you can explain the circumstances to HMRC.
How long must I keep digital records?
You must keep digital records for at least 5 years after the 31 January filing deadline for the relevant tax year. For 2026–27 records, the deadline is 31 January 2028, so you must keep records until at least 31 January 2033.
Is a photo of a receipt on my phone enough?
A photo on your phone is not sufficient alone — it must be stored in your HMRC-approved software or a linked app (Dext, Hubdoc). Once stored in the software, the photo satisfies the digital record requirement and you can discard the paper receipt.