MTD for Income Tax: What does best practice digital record keeping look like?

From April 2026, digital record keeping becomes a core requirement of Making Tax Digital (MTD) for Income Tax.

MTD for Income Tax: What does best practice digital record keeping look like?

From April 2026, digital record keeping becomes a core requirement of Making Tax Digital (MTD) for Income Tax. This marks a shift from paper based or spreadsheet only bookkeeping to software driven processes designed to improve accuracy, reduce errors and provide clearer insight throughout the year.

For those impacted, it’s crucial to be aware of obligations and best practices. Building strong digital habits now ensures compliance and smoother financial management.

1. Know what counts as a digital record

Under MTD, certain data must be recorded and stored digitally. A digital record is income and expense information that is:

Created and stored electronically
Maintained in MTD compatible software
Transferred to HMRC digitally, without manual re‑typing

At a minimum, each transaction must include:

Date of the transaction
Amount received or paid
Category of income or expense (e.g. sales, rent, travel, office costs)

2. Record every transaction, not just totals

From 2026, all business and property income transactions must be stored digitally.

Thresholds apply as follows:

Over £50,000 qualifying income from 2026
Over £30,000 from 2027
Over £20,000 from 2028

Paper receipts can be kept, but the data used for quarterly submissions must be digital.

3. Use the right software – with digital links

Your software must be able to:

Hold digital records
Submit quarterly updates
Submit the Final Declaration
Receive HMRC held data

If you want to continue using spreadsheets, bridging software must digitally link your data - no manual copying. However, spreadsheets come with risk of error long term, therefore we would advise using MTD compliant cloud software to reduce this risk which can also simplify the process long term.

4. Keep income streams separate

Separate digital records should be maintained for:

Each property
Each business activity
Joint property ownership or retail specific rules where required

Avoid mixing unrelated income in the same ledger.

5. Capture documents consistently

Best practice includes:

Photographing receipts in real time
Using mobile apps
Applying consistent naming and categories
Reconciling regularly to bank feeds

This reduces errors and supports timely quarterly submissions.

6. Maintain records in real time

Updating records throughout the year provides:

Fewer errors
More accurate quarterly figures
Better cash‑flow visibility
Smoother year end processes
More predictable January tax bills

7. Ensure accurate quarterly updates

Quarterly submissions must summarise year to date digital records, including:

Total income
Categorised expenses
Separate figures per income stream

Accuracy here reduces corrections needed at year end.

8. Be ready for the year‑end final declaration

This replaces the Self-Assessment return and brings together:

Quarterly data
Adjustments (e.g., capital allowances)
HMRC held income
Additional income not held by HMRC

Reviewing data regularly and maintaining consistent coding supports this process.

9. Avoid common pitfalls

Steer clear of:

Paper only recordkeeping
Spreadsheets without digital links
Manual re‑typing
Late transaction entry
Inconsistent categorisation

10. Build a future‑proof system

Now is the time to:

Automate bank feeds
Use expense capture tools
Train staff
Conduct internal quarterly reviews

A scalable digital approach minimises future disruption.

Get in touch

Anita Holmes

MTD Client Services Director