Key takeaways
- MTD requires digital records, kept as transactions happen, not reconstructed at the end of the year.
- Records must cover both income and expenses, categorised in enough detail to support each quarterly update.
- A spreadsheet can count as a digital record, but only when paired with MTD-compatible bridging software.
- Property income has its own record-keeping requirements if you're a landlord as well as self-employed.
- You still need to keep records for the same statutory period as under Self Assessment — usually five years after the filing deadline.
Making Tax Digital for Income Tax changes more than how often you report to HMRC — it changes what counts as an acceptable record in the first place. A shoebox of receipts sorted once a year, or a spreadsheet filled in from memory every few months, doesn't meet the requirement on its own. Here's what actually does.
Quick answer: what counts as a digital record under MTD?
Under Making Tax Digital for Income Tax, you need to keep digital records of your business income and expenses using software that can connect to HMRC — either dedicated accounting software or a spreadsheet paired with bridging software. Records need to be entered close to when transactions happen, not reconstructed from memory at the end of the quarter or year.
Why MTD changes what "good enough" looks like
Before MTD, HMRC only required you to keep records that could support your Self Assessment return, however you chose to store them — paper, spreadsheet, notebook. Under MTD, the record itself has to be digital and structured well enough that software can generate a quarterly summary from it directly, without you manually re-typing totals into a return each time.
Income records you need to keep
Every source of business income needs a digital entry — invoices raised, payments received, platform payout statements if you work through an app-based platform, and any other income the business generates. The date and amount need to be captured digitally as it happens.
Expense records you need to keep
Expenses need to be recorded digitally and categorised in enough detail to support your quarterly updates — for example separating vehicle costs, office costs, and professional fees rather than lumping everything into one generic "expenses" total. Paper receipts are still worth keeping as evidence, but the digital entry is what MTD actually requires.
If you also have property income
Landlords in scope for MTD need to keep the same kind of digital records for rental income and allowable property expenses — rent received, letting agent fees, repairs, insurance, and mortgage interest restrictions — alongside any self-employment records, since both are reported through the same MTD framework.
Can a spreadsheet still work?
Yes, but only if it's paired with HMRC-recognised bridging software that can take your spreadsheet data and submit it in the format MTD requires. The spreadsheet itself needs to be well structured — consistent columns, entered regularly — since bridging software can't fix messy or incomplete data on the way through. For a full comparison of software options, see MTD Software for Sole Traders: What You Actually Need.
How this differs from a shoebox of receipts
A box of paper receipts sorted once a year has never been ideal, but it was at least workable under old-style Self Assessment. Under MTD it doesn't meet the requirement on its own — there needs to be a digital record behind it, built up through the year rather than assembled retrospectively before a deadline.
How long to keep records
- Keep digital records and supporting evidence for at least five years after the 31 January submission deadline for the relevant tax year
- Keep paper receipts as backup evidence even once they're logged digitally
- Keep a copy of each quarterly update and your final declaration once submitted
How Aurestone helps
We help sole traders move from spreadsheets or paper records onto MTD-compliant software, set up sensible expense categories from day one, and keep records in good enough shape that quarterly updates become routine rather than a scramble. See our Making Tax Digital accountant for sole traders page.
What to read next
Sources checked
Checked against HMRC guidance on Making Tax Digital for Income Tax and keeping digital records.
Making Tax Digital resource centre
Check the rule, deadline and support that applies to you
Start with the complete guide, check your quarterly dates, or see how Aurestone can manage the digital records and submissions for you.
Frequently asked questions
Do I need to scan every paper receipt?
Not necessarily — you need a digital record of the transaction (date, amount, category), and it's sensible to keep the paper or a photo of it as supporting evidence, but the software entry is what MTD is actually checking for.
Can I keep records in a spreadsheet?
Yes, as long as it's paired with HMRC-recognised bridging software that can submit your data in the required format, and the spreadsheet itself is kept up to date and consistently structured.
What happens if my records aren't digital when my MTD start date arrives?
You risk missing your first quarterly update or submitting inaccurate figures. It's worth moving to digital record-keeping before you're legally required to, so the switch isn't rushed.
Do I still need to keep records if my accountant handles my bookkeeping?
Yes — even if your accountant enters the data, the underlying evidence (invoices, receipts, bank statements) is still your responsibility to keep and provide.
Topics
Making Tax Digital
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