Create digital records

How to create and store digital records of your income and expenses for Making Tax Digital for Income Tax.

You need to create and keep digital records of your self-employment and property income and expenses using compatible software for Making Tax Digital for Income Tax.

You must also continue keeping records like you normally do for Self Assessment.

For example, you still need to keep original records (or copies) if you need them to make a correct and complete return.

Before creating your records, you should check that you have followed all the steps in before you sign up, including authorising your software.

Using software for digital record-keeping

You need to use software that works with Making Tax Digital for Income Tax.

Some compatible software lets you keep digital records of your self-employment and property income and expenses.

You can use spreadsheets to store digital records and use compatible software (known as bridging software) to send updates to HMRC.

If you have an agent, you should discuss software options with them as they may already be using compatible software.

If you use bridging software

Once you’ve created a digital record in your spreadsheet, you must digitally link your spreadsheets to bridging software.

This means you must not manually edit or move the record within the spreadsheet or to other software if it has been included in a quarterly update. For example, you must not:

  • copy information by writing it out in another cell or in other software
  • rewrite a record
  • use ‘cut and paste’ or ‘copy and paste’ to move records

You can digitally link your records in various ways, including:

  • using linked cells in spreadsheets — for example, if you have a formula in one sheet that mirrors the source’s value in another cell and the cells are linked
  • emailing a spreadsheet containing digital records, so the information can be imported into another software product
  • transferring a set of digital records onto a portable device (for example, a pen drive, memory stick or flash drive) and physically giving this to someone who imports the data into their software
  • XML, CSV importing and exporting, and downloading and uploading files
  • using an automated data transfer
  • using an application programming interface (API) transfer

You do not need to digitally link:

  • records that are not self-employment or property income and expenses
  • software that’s not used to keep digital records of self-employment and property income and expenses — for example, software that takes bookings

If you later need to adjust a record, then this must be done digitally in your compatible software. If you have an agent that deals with your record keeping, they can do this on your behalf but they must maintain the digital link.

Records you need to keep digitally

You only need to keep digital records of your self-employment and property income and expenses, such as:

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

Read more about the types of information that you should keep digital records of and send to HMRC in a quarterly update.

If you have more than one business 

You must keep separate records and make separate submissions for each business. 

For property income from multiple properties: 

  • treat all UK properties as one ‘UK property business’ 
  • treat all non-UK properties as one ‘foreign property business’ 

If you own foreign property in more than one country, keep separate digital records for each country you get property income from.

Records you can choose to keep digitally

There are some records you do not need to keep digitally but can choose to do so. This can help you maintain a more up-to-date view of your tax affairs.

Personal income sources  

You do not need to keep digital records of personal income sources that you report through Self Assessment, such as income from savings and dividends.

If your compatible software has the functionality, you can choose to report these income sources during the tax year, through your software.

Disallowable expenses 

You can choose to keep a digital record of the disallowable portion of an expense in your software.  

For example, you have a mobile phone bill which totals £200. The bill is made up of:

  • £125 for business calls 
  • £75 for personal calls (which is the disallowable portion of the expense) 

If you choose to keep a record of the disallowable portion, you should create a digital record of: 

  • the full £200 expense 
  • the £75 disallowable portion

Simplified expenses

If you’re sure you’ll use a simplified expenses scheme, you do not need to keep digital records of your actual expenses.

If you’re not sure, you should keep digital records of all expenses.

Find out more about simplified expenses.

Transactions that are part capital and part revenue

If you have a transaction which is part capital and part revenue, you can either:

  • record the full value of a transaction (including capital elements) — you should make an adjustment before finalising your business income
  • create a digital record of just the revenue amount

For example, if you make a mortgage payment, you must create a digital record of the interest. You do not need to create a digital record of the capital you’ve paid.

If you have a capital allowance claim

Your software may have the functionality for you to submit a capital allowances claim. This will give you an updated estimate of your tax liability. HMRC will not process your claim until you have submitted your tax return.

Specific record-keeping requirements 

You can choose to keep and categorise your records in a particular way if:

  • your turnover is below the VAT threshold
  • you are a retailer

You can read more information on VAT thresholds.

Simpler categorisation if your turnover is below the VAT threshold

You can choose to categorise your digital records in less detail if you have either:

  • total UK property income of less than £90,000 before expenses
  • total income from self-employment of less than £90,000 before expenses

You can do this for one or both sources of income.

If you’re a sole trader, you only need to record whether a transaction is income or an expense.

If you’re a landlord and receive rental income from residential property (excluding furnished holiday lets), you need to categorise your expenses in more detail. You must:

If your turnover later goes above the VAT threshold

You will not be able to submit your tax return if your turnover is more than £90,000. You’ll need to categorise all digital records in full detail, including those:

  • from the beginning of the current tax year
  • in the following tax year

If you’re unsure if your turnover will go above £90,000, you should categorise your digital records in full detail.

If you’re a retailer

You can choose to create a digital record of your daily gross takings, instead of individual sales that you make. 

Read more about keeping digital records of retail sales.

What to do at the start of the tax year

There are some decisions you should make at the beginning of the tax year, even though you might currently make them after the tax year has ended.

Consider which accounting method to use

You may want to consider which accounting method you’ll use for your record keeping. This will either be:

Choose how to categorise your records

You may want to use simpler categorisation for your digital records if you are eligible.

Choose if you’re going to use allowances or reliefs

You can decide if you’re going to use allowances or reliefs to make your estimated Self Assessment tax bill more accurate. These include:

HMRC will not process your allowance or relief claim until you have submitted your tax return.

If you’re not sure if you want to make a claim, you should wait until the end of the tax year.

How to create digital records

When you create records of your income or expenses, you must record the:

  • amount
  • date when the income was received or expenses incurred
  • category — depending on your record-keeping requirements

Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment.

When to create digital records

You must create digital records for a quarterly period before either:

For example, you must create a digital record of income you receive on 30 April before (all of the following):

  • you send your first quarterly update
  • 5 August — the deadline for that update

You should create digital records as close to the date of the transaction as possible. This will help you have a more up to date view of your business affairs.

During the testing phase, if you sign up partway through the tax year, you don’t need to catch up with your digital record-keeping straight away, as late submission penalties for quarterly updates don’t apply. You can read more about catching up in the Introduction.

If you cannot confirm all the details of a digital record

You might not know all the details of a transaction by the quarterly deadline, if you get this information from another party. For example:

  • you only get told what your income is after expenses are deducted (net income)
  • you’re told about your business income by either a trust or partnership and cannot meet the requirement to create digital records by the relevant quarterly deadline

If you only get told about your net income

You need to:

  1. Ask what the full amount of income was before expenses were deducted.

  2. Create a digital record for the full amount of income.

  3. Create a digital record for your expenses.


If a trust or partnership tell you about your business income

You may be unable to create digital records before the quarterly deadline if a trust or partnership tells you about your self-employment or property income after the deadline.

For example, if you receive disguised investment management fees and are notified of them after the end of the tax year, you can either:

  • estimate your income or expense and then confirm it later 
  • record the income or expense once you are notified of it

If you choose to estimate your income or expense

You should:

  1. Create a digital record for the transaction.

  2. Edit the digital record when the income or expense is confirmed.

  3. Resend the relevant quarterly update.


If you choose to record the income or expense once it’s confirmed

You should:

  1. Send nil returns during the tax year if you have no other business income.

  2. Create a digital record for the income or expense when you are notified of it.

  3. Resend the relevant quarterly update.

You must have finalised your digital records before you send your tax return.

How long must you store digital records

You must keep your digital records for at least 5 years after the 31 January submission deadline for a tax year. This is the same amount of time you need to keep records for Self Assessment.

If you decide to change your software

You still need to store your digital records for the correct length of time if you change your software.

You should also make sure you can access your digital records from previous tax years. For example, you may need to export your digital records from your old software.

If you change your agent, you need to request and store your digital records from previous tax years.

If you change your software during a tax year

If you use compatible software to keep digital records, you must import your digital records into the new compatible software for the current tax year.

If you use bridging software, you will need to link the new bridging software to your spreadsheet.

If you change your software after the end of a tax year

You do not need to import your digital records from previous tax years into the new software.

What to do next

When you have chosen how you will create and store your digital records, you should check when you need to send updates to HMRC.