What HMRC means by "digital records"
Under MTD for Income Tax, HMRC requires you to record every business transaction digitally. This means storing information in software, not on paper. Specifically, each transaction must be recorded with:
- The date of the transaction
- The amount (in pounds sterling)
- A description or category of what it relates to
Crucially, the records must be stored in software that is capable of submitting data to HMRC — a Word document, a notes app, or a general spreadsheet without a bridging tool does not qualify.
Key rule: Digital records must be kept in MTD-compatible software from the first day of your first MTD tax year — for most people, that's 6 April 2026.
What you need to record
You must keep digital records of all business income and expenses. Here's what that covers:
| Transaction type | What to record |
|---|---|
| Sales / income | Date, amount received, description of what it was for |
| Expenses | Date, amount, category (e.g. travel, admin, premises), description |
| Bank transactions | If using open banking, these are imported automatically and categorised |
| Cash transactions | Must be recorded manually — date, amount, and what it was for |
You do not need to attach scanned copies of invoices or receipts to your digital records — though keeping them separately is good practice in case of an HMRC enquiry.
What software qualifies?
HMRC maintains an official list of recognised MTD for Income Tax software on gov.uk. To qualify, software must be able to:
- Store digital records of income and expenses
- Submit quarterly updates directly to HMRC via the MTD API
- Submit the End of Period Statement and Final Declaration
Examples of recognised software include dedicated apps (such as Bart, QuickBooks, Xero, and FreeAgent) and accounting packages with MTD functionality. Spreadsheets can qualify only when used with a compatible bridging tool.
Check the HMRC list: Always verify that the software you're using is on HMRC's official recognised software list before you start using it for MTD.
Can you use a spreadsheet?
Yes — but only if you pair it with a bridging tool. A bridging tool is software that reads your spreadsheet data and submits it to HMRC in the correct MTD format. The spreadsheet itself is not sufficient.
This approach is more complex and more error-prone than using an all-in-one app. Common issues include broken formulas, incorrect category mapping, and difficulty maintaining the required digital link between the spreadsheet and the bridging tool. Most sole traders find a dedicated app significantly easier.
Open banking as a record-keeping shortcut
Apps like Bart connect to your bank via open banking — a secure, FCA-regulated way for software to read your bank transactions (read-only, never able to move money). This means:
- Your transactions are imported automatically — no manual data entry
- AI categorisation sorts income and expenses into HMRC's categories
- You review and approve, rather than inputting from scratch
For most sole traders, this is the least time-intensive way to comply with MTD's digital record-keeping requirements.
How long do you need to keep records?
HMRC requires you to keep digital records for at least 5 years after the 31 January deadline of the relevant tax year. For the 2026/27 tax year (ending 5 April 2027), your records must be kept until at least 31 January 2033.
This means your MTD software must remain accessible — or you must export and store your records — for that period.
What counts as a receipt?
For MTD submissions, you do not need to attach digital receipts. Your quarterly update simply reports totals per category. However, HMRC expects you to be able to produce supporting evidence if they open an enquiry.
Acceptable formats include:
- Photos of paper receipts (stored in your app or cloud storage)
- Email confirmations or PDF invoices
- Bank statements showing the transaction
Digital record keeping made effortless
Bart connects to your bank via open banking, imports your transactions automatically, and categorises them using AI — so your digital records are always accurate and HMRC-ready.
Try Bart freeFrequently asked questions
Do I need to photograph every receipt?
Not for MTD submissions themselves — quarterly updates only require totals per category. But keep receipts for at least 5 years in case of an HMRC enquiry. Digital photos or scans stored in your app are perfectly acceptable.
What if I use cash a lot in my business?
You must still record cash transactions digitally. Note the date, the amount, and what it was for. If you're regularly dealing in cash, a simple daily summary in your MTD software is sufficient.
Can I use multiple apps to keep my records?
In theory yes, but data must flow electronically between them — you cannot manually re-key figures from one system to another (except at an approved "digital link" boundary). Using a single all-in-one app is simpler and less error-prone.
What is a digital link?
A digital link is an electronic transfer of data between two pieces of software — for example, exporting a CSV file and importing it into another tool. This is allowed. What is NOT allowed is manually copying numbers from one system and typing them into another.