What Are Digital Records? MTD Record-Keeping Defined

The headline change in Making Tax Digital is the quarterly filing, but the quieter, more demanding change is the record-keeping rule underneath it. HMRC is not just asking when you file; it is dictating how you store every transaction in between. A shoebox of receipts and a year-end spreadsheet, the way millions of sole traders have always worked, will no longer meet the legal standard.

What Counts as a Digital Record

A digital record is not simply a photo of a receipt or a PDF invoice sitting in a folder. HMRC defines it as a structured electronic record of each business transaction, held in software that can read, total and submit it. For each transaction you generally need to capture the amount, the date, and the category (the type of income or expense). The software then maintains a running digital ledger from which quarterly updates are generated automatically.

Digital record

An electronic record of an individual business transaction, held in HMRC-recognised software with the amount, date and category captured, so figures can be totalled and submitted without manual re-typing.

You can still keep your physical receipts and invoices as supporting evidence, and HMRC recommends you do. But the working record, the thing your tax figures are built from, must live in compatible software. Check whether and when this applies to you with the MTD check.

The Digital Links Rule

The single most misunderstood part of MTD record-keeping is the "digital link" requirement. HMRC's rule is that once data is in a digital record, it must move to the point of submission electronically, without being manually copied or re-typed at any stage.

In practice this rules out the classic approach of keeping a spreadsheet and then typing the totals into HMRC's portal by hand. If you want to keep using a spreadsheet, it must be connected to HMRC through bridging software that pulls the figures across automatically via a digital link. The chain from transaction to submission has to be unbroken and digital.

This is why a spreadsheet "alone" fails the test even though spreadsheets can store data perfectly well. It is the manual re-keying, not the spreadsheet itself, that HMRC objects to. For the bigger picture of what the whole regime requires, see our overview of Making Tax Digital.

A Worked Example for 2026/27

Consider Sarah, a self-employed mobile hairdresser preparing for MTD from April 2026 because her income exceeds £50,000. Here is how her record-keeping changes for a single week.

The difference is not the amount of information, it is the flow. Every figure is captured once, electronically, and carried through to HMRC without a human re-entering it. That removes a major source of error and is exactly what the digital links rule is designed to enforce. Our blog walks through setting this up step by step.

Why It Matters Beyond Compliance

Keeping digital records is framed as a legal obligation, but the practical upside is real. Because every transaction is captured as it happens, your income and expense position is always current rather than reconstructed in a panic each January. You see your tax liability building through the year, you spot missing receipts while they are still findable, and the quarterly updates become a near-automatic by-product of records you are keeping anyway. The compliance burden and the cash-flow benefit, unusually, point in the same direction.

“Digital records are less about new paperwork and more about capturing the paperwork once, electronically, so nothing has to be re-typed later.”

People also ask

Do I have to throw away my paper receipts under MTD?

No. You should keep paper or photographed receipts and invoices as supporting evidence in case HMRC asks for them. What changes is that your working tax records, the figures your return is built from, must be held digitally in compatible software rather than only in paper books.

What is a digital link in MTD?

A digital link is an electronic connection that moves data between software or stages without manual re-typing. Under MTD, the chain from your digital records to your HMRC submission must be made of digital links, so you cannot legally copy figures by hand at any point in the process.

Is HMRC-recognised software expensive?

Costs vary, and HMRC maintains a list of compatible products at different price points, including some free or low-cost options for simple sole traders. Purpose-built apps that combine record-keeping, categorisation and submission are often cheaper and simpler than buying bridging software to bolt onto a spreadsheet.

What if I have more than one business?

You keep separate digital records for each business or property source, but compatible software typically handles multiple sources within one account. The records for each are kept distinct so the correct figures flow into the right part of your quarterly updates and Final Declaration.