Under Making Tax Digital for Income Tax, each item of self employment and property income and expense has to be recorded in compatible software with its amount, date and category, no later than when the quarterly update that includes it is sent. Retailers, joint landlords and businesses below the VAT registration threshold may record totals or use fewer categories. Digital records must be kept for at least five years after the 31 January filing deadline for the year.

Where does the duty to keep digital records come from?

Regulation 15 of the Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336) requires a person within MTD to keep digital records for each digital obligation tax year, using functional compatible software. The records are defined as the financial information that has to go into each quarterly update and the tax return, plus details of the items that make up that information, including their amounts and the dates on which they were received or incurred. Regulation 15(4) allows HMRC to specify by direction a smaller subset of records that a person may elect to keep instead. HMRC has done this in its digital record keeping direction, which is where the permission to record totals comes from.

Regulation 3 defines functional compatible software as a program, or a set of programs, that can keep and correct digital records, send quarterly updates and deliver returns through HMRC’s API platform. A set of programs only counts if data recorded in one of them does not need to be recorded again by the user to be used in another. That is why a spreadsheet joined to bridging software can work, and why the digital links rules apply once data is in the records.

What has to be recorded digitally?

HMRC’s guidance lists the records needed:

  • self employment income, including sales, takings and fees;
  • self employment expenses, including the cost of stock, travel, office costs and financial costs;
  • property income, including rent, premiums for the grant of a lease, reverse premiums and inducements;
  • property expenses, including rent, repairs, maintenance and other services.

Each record must show the amount, the date the income was received or the expense incurred, and a category. MTD uses the same income and expense categories as Self Assessment. Someone with two sole trades keeps a separate set of records for each. All UK lettings are one UK property business, so there is no need for separate records per UK property. Foreign property is different: a separate digital record is kept for each overseas property, and the software combines them into one foreign property update.

Other income, such as a share of partnership profit, dividends, the State Pension and private pensions, does not have to be kept digitally, although it can be. The digital records do not replace ordinary record keeping either. HMRC says original records and supporting documents, such as bank statements and invoices, or copies of them, must still be kept. Our page on record keeping for the self employed covers those wider obligations.

When must each record be made?

Regulation 15(3) sets the latest time. A record that feeds a quarterly update must be made no later than the date the update is sent or is due, whichever is earlier. Anything else must be recorded by the date the return is delivered or due. HMRC’s example is income received on 30 April: it must be recorded before the first quarterly update is sent and in any event by 7 August. HMRC recommends recording transactions as close to the date of the transaction as possible.

Records start on 6 April if the accounting period ends on 5 April, or on 1 April if it ends on 31 March and calendar update periods are used. Someone who signs up part way through a tax year has to catch up by creating records from the start of that year.

Two practical points come up often. Bank feeds help but are not the record on their own: HMRC says some transactions may not appear in full in a feed, extra detail such as the category may need adding, and the taxpayer is responsible for checking accuracy. And where only a net figure is known, for example rent after a letting agent’s deductions, HMRC says to ask for the full income figure, then record the gross income and the expenses separately.

When can transactions be totalled instead of recorded one by one?

The direction allows three simplifications.

Retail sales

A retailer may choose, for each tax year, to keep a single digital record of daily gross takings for retail sales instead of recording each sale. The daily figure must include all payments from cash paying retail customers, including cheque, card and other electronic payments, and the full value of credit and other non cash sales, including payment in kind, the face value of vouchers and sales made through third party online platforms. Items such as counterfeit notes, refunds for overcharges or faulty goods, float discrepancies, void transactions, training till use and unsigned or dishonoured cheques are excluded. Our page on recording daily takings covers till routines.

Jointly let property

For their share of jointly let property only, a landlord may keep one record per category of property income for each quarterly update period, and one record per category of property expense for the whole tax year. The details are on our page on MTD for jointly owned property.

Turnover below the VAT registration threshold

Where turnover from a self employment or UK property source is below the VAT registration threshold, which HMRC’s guidance gives as £90,000, the records for that source can be categorised simply as income or expense. This is a simpler categorisation, not permission to total: each transaction is still recorded. A landlord of residential property must still record residential finance costs, such as mortgage interest, separately. If turnover reaches £90,000, every record for that source from the start of the tax year must be categorised in full before the next update can be sent.

How should mixed and disallowable items be recorded?

HMRC gives three options for an expense that is partly private: record only the allowable part, record the total and the disallowable part, or record the total and adjust the category total at the year end. Its example is a £200 phone bill containing £75 of personal calls. Someone sure they will use flat rate simplified expenses need not record the actual costs those rates replace. For a payment that is part capital and part revenue, such as a mortgage payment, either record only the revenue element (the interest) or record the full amount and adjust it before the return, as explained in our page on year end adjustments under MTD.

How long must digital records be kept?

At least five years after the 31 January submission deadline for the tax year, which is the same period as for Self Assessment generally. HMRC’s example is the 2026 to 2027 return, due by 31 January 2028, whose digital records must be kept until at least 31 January 2033. If a return is sent more than four years after its deadline, the records must be kept for 15 months after it is sent.

Changing software does not change the period. HMRC says old records must stay accessible, for example by exporting them and storing them securely, though there is no need to import earlier years into the new product. A mid year change means importing or recreating the current year’s records in the new software. Records are not transferred automatically when a client changes agent, and someone who ceases all their businesses must still keep their digital records to support the final return. Our page on record keeping penalties explains what can follow if records are not kept.

What does this look like for a small business?

Illustration only. Mia runs a gift shop with turnover of about £70,000 and also lets a flat with a mortgage. For the shop she records one daily gross takings figure, including card payments and sales through an online marketplace and leaving out refunds and voided sales. Supplier invoices are recorded one by one. Because the shop is below £90,000 she uses the income or expense categories only. For the flat she records each rent receipt and each expense, with the mortgage interest kept separate as a residential finance cost. Her phone bill goes in at its full amount and she adjusts the category total at the year end. Everything for April to early July is recorded before she sends her first update, and the 2026 to 2027 records are kept until at least 31 January 2033.

What mistakes come up most often?

  • Treating a bank feed as complete without checking for missing or part transactions.
  • Recording net rent from a letting agent instead of gross rent and the agent’s costs.
  • Copying or retyping figures between programs once records exist, which breaks the digital links rules.
  • Carrying on with simple categories after turnover reaches £90,000.
  • Throwing away invoices and statements on the assumption that the software record is enough.
  • Losing earlier years’ records when switching software or agent.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.