Digital-record requirements under MTD for Income Tax

Scope: For sole traders and landlords using Making Tax Digital for Income Tax in 2026 to 2027. It covers the core record fields and workflow, not every specialist adjustment.

The short answer

Use compatible software to create and store digital records for the in-scope self-employment and property income and expenses.

Each record normally needs the amount, the transaction date and the relevant category, subject to HMRC’s permitted simpler categorisation.

Create records before the relevant quarterly update and as close to the transaction as practical. Other Self Assessment income, such as dividends and pensions, is not generally required in the quarterly digital records, but must be dealt with before the final return is submitted.

Which businesses need records

Keep separate control over each sole trade and the property sources required by the service. UK properties are generally treated together as one UK property business, including a person’s share of jointly let UK property. Foreign-property record treatment differs and can require records for each property and ownership share.

Do not assume a small source can be ignored just because a larger source caused the threshold to be crossed. HMRC’s guidance has specific rules for trading allowance, property allowance and Rent-a-Room cases within MTD.

Minimum fields and useful evidence

The core digital record contains:

• amount;
• date income was received or expense incurred; and
• category required for the source.

Also retain invoice or receipt references, customer or supplier, payment method, tax treatment, business-use adjustment and explanatory notes where these help support accuracy. A photograph of a receipt alone is not necessarily the structured transaction record that compatible software needs.

Use the same accounting basis and categories consistently. Correct an inaccurate record rather than creating undocumented balancing entries.

When simpler categorisation applies

HMRC allows defined groups to keep less detailed categories. The current guidance distinguishes sole traders below the relevant turnover measure, residential landlords and foreign-property income. Check the live conditions before configuring the software.

Simpler categorisation does not remove the need to record transactions or identify restricted finance costs where HMRC requires it. If turnover reaches the relevant threshold, full categorisation may be needed for records from the beginning of the current year and following year.

Timing and quarterly updates

The applicable start date depends on the accounting period. HMRC’s guide distinguishes accounting periods ending 5 April from those ending 31 March. Configure standard or calendar update periods before the first update where required.

Create all records for a quarterly period before its update deadline or before sending the update if earlier. HMRC recommends recording close to the transaction date so the running view stays useful.

If you sign up partway through a year, catch up records from the start of the relevant year and include them in the next required update. A quarterly update is a summary of records, not a tax return or final tax calculation.

Allowances and other income

Claiming the trading or property allowance does not necessarily remove MTD record duties where the source was declared and falls within HMRC’s conditions. The allowance is claimed when completing the return through compatible software.

Dividends, State Pension, private pensions and an individual’s partnership profit share are examples HMRC says do not have to be created as quarterly digital records. They may be recorded voluntarily for a fuller estimate, but all relevant income and gains must be added before submission of the final return.

Record-system controls

• Reconcile bank and payment-platform totals regularly.
• Restrict and log changes to historical records.
• Preserve digital links between spreadsheets and submission software.
• Back up exports in a readable format.
• Test category mapping before the first update.
• Retain source evidence for the normal statutory period.
• Keep the records for at least five years after the 31 January submission deadline for the relevant tax year.
• Review estimates when confirmed figures arrive.

Common mistakes

• Keeping only paper receipts without digital transaction entries.
• Combining different businesses into an unsupported source.
• Recording net profit as one quarterly transaction.
• Deleting an estimate rather than correcting it with an audit trail.
• Believing quarterly updates replace the final return.
• Omitting small declared sources without checking the allowance rules.

What to do next

1. Confirm the businesses covered by MTD.
2. Set the accounting and update periods.
3. Configure the required categories.
4. Import or enter records from the start date.
5. Reconcile and correct them before each update.
6. Add other income and final adjustments before the return.