What Records Do You Need to Keep for MTD?

Digital Record Keeping Under MTD

HMRC defines digital record keeping as recording your income and expenses using software — rather than maintaining a manual cashbook or handwritten ledger. Each transaction must be recorded individually; you cannot enter a single weekly or monthly total for a category of income or expense.

Your records must be maintained in a format that allows your MTD-compatible software to extract the required data and submit your quarterly updates directly to HMRC. Most dedicated accounting software does this automatically as you enter transactions.

If you prefer to use a spreadsheet, you can — but you will need bridging software to connect your spreadsheet to HMRC's MTD API for submissions.

Income Records to Keep

For each piece of business income you receive, you should record:

• The date the income was received (or the invoice date)
• The amount received (gross, before any deductions)
• The name of the customer or client
• A brief description of the goods or services provided
• The invoice number (if applicable)

If you issue invoices, keeping a copy of each invoice within your software is the easiest way to satisfy these requirements. Most accounting software creates and stores invoices automatically.

Expense Records to Keep

For each business expense, you should record:

• The date of the purchase or payment
• The amount paid (including VAT if relevant)
• The supplier's name
• The nature of the expense (what it was for)
• The expense category (e.g. travel, office costs, stock)

HMRC requires you to categorise expenses according to its defined expense types. Your software will typically prompt you to assign the correct category when you add an expense. Common allowable business expense categories for sole traders include:

• Office, property, and equipment costs
• Travel and vehicle costs
• Clothing and uniforms (if required for work)
• Staff costs
• Cost of goods bought to resell
• Financial and legal costs
• Marketing and advertising
• Professional fees

What ‘Digital’ Means in Practice

HMRC's definition of ‘digital’ is broader than you might expect. It doesn't mean you need to use a specific type of software or store records in a particular way — it means each transaction must be recorded electronically and stored in a format that can be read and reported by MTD-compatible software.

Acceptable digital records include:

• Entries in accounting software (Xero, QuickBooks, Sage, FreeAgent, etc.)
• Records in a digital spreadsheet linked to bridging software
• Scanned or photographed receipts stored within your accounting app
• Bank feeds imported automatically into your accounting software

What is not acceptable is a purely paper-based record system — even if you intend to enter the figures into software at a later date.

How Long Do You Need to Keep Records?

HMRC requires sole traders to retain business records for at least five years after the 31 January submission deadline for the relevant tax year. In practice, this means:

Records for the 2026/27 tax year (the first mandatory MTD year for those above £50,000) must be kept until at least 31 January 2033.

Most cloud accounting software stores your records indefinitely and will not delete them unless you explicitly request it. If you change software providers, make sure you export and retain your historical data.

Can You Photograph Receipts?

Yes. HMRC explicitly accepts photographs of paper receipts as valid digital records. This is particularly useful for cash purchases, taxi fares, or other expenses where you receive a paper receipt. The photograph must be legible and clearly show the key details — date, amount, supplier name, and nature of the expense.

Many accounting apps — including FreeAgent, Xero, and QuickBooks — have built-in receipt scanning features that use optical character recognition (OCR) to extract the relevant data automatically, creating a digital record without any manual typing.

Using Apps and Software for Records

The easiest way to maintain compliant digital records is to use MTD-compatible accounting software throughout the year. These tools are designed around HMRC's requirements, so if you record every transaction as it happens, you'll almost automatically be ready to submit your quarterly update when the deadline arrives.

If you have an accountant, they may use software that you also have access to — allowing them to review and submit on your behalf. Always confirm that your accountant is set up to act as your MTD agent with HMRC.

Common Record-Keeping Mistakes to Avoid

• ⚠Batch-entering records at quarter end — this creates a rush before deadlines and increases the chance of errors. Record transactions as they happen or at least weekly.
• ⚠Mixing personal and business transactions — keep a separate business bank account to make reconciliation straightforward.
• ⚠Forgetting small cash expenses — petty cash, parking, stamps, and similar small costs are easily overlooked but can add up. Record them as soon as possible after the transaction.
• ⚠Not backing up data — cloud accounting software is generally backed up automatically, but if you use a spreadsheet make sure you have regular backups stored securely.

Frequently Asked Questions

Related Guides

• Can You Use Spreadsheets for MTD? Bridging Software Explained
• MTD for Income Tax: Deadlines and Key Dates
• Best MTD Software for Sole Traders
• MTD for Sole Traders: Complete Guide Hub