Many sole traders and landlords know that Making Tax Digital for Income Tax is coming, but a lot of people are still unclear on one basic question:
What exactly do I need to keep digitally?
That confusion matters. If you are brought into MTD for Income Tax, HMRC expects you to keep digital records using compatible software and use those records to send quarterly updates. Leaving this until the last minute can make the change feel much harder than it needs to be.
The good news is that the record-keeping rules are more practical than many business owners expect. In most cases, you are not being asked to create a complicated new accounting system from scratch. You are being asked to keep the right income and expense information digitally, in the right categories, and in a way that can flow into your submissions.
In this guide, we explain what counts as a digital record, what details you need to keep, what does not need to be recorded digitally, and where people often get tripped up.
First: Who Needs to Keep Digital Records for MTD Income Tax?
Making Tax Digital for Income Tax is being introduced in stages for sole traders and landlords.
- From 6 April 2026, it applies where qualifying income shown on the 2024 to 2025 tax return was more than £50,000.
- From 6 April 2027, it applies to those with qualifying income over £30,000.
- From 6 April 2028, it applies to those with qualifying income over £20,000.
Qualifying income means gross self-employment and property income before expenses, based on the previous tax year’s tax return.
If you are within scope, digital record-keeping is not optional. It is one of the core parts of the new system.
What Is a Digital Record for MTD Income Tax?
HMRC says a digital record is a record of income or expense that is created and stored using software compatible with MTD for Income Tax.
In plain English, that usually means bookkeeping software, a spreadsheet linked to bridging software, or another digital system that can keep your records and support submission.
If you currently keep paper notes, handwritten summaries, or receipts stuffed into a folder, that will not be enough on its own once you are required to use MTD for Income Tax.
What Details Need to Be Recorded Digitally?
For each income or expense record, HMRC says you need to capture:
- the amount
- the date the income was received or the expense was incurred
- the category of the income or expense
Those categories broadly follow the same categories used for Self Assessment.
That means the practical question is not “do I need to upload every receipt to HMRC?” The real question is whether your software records your transactions properly so it can total them into the correct categories for quarterly updates and year-end work.
What Income and Expenses Must Be Kept Digitally?
The main rule is simple: you need digital records for your self-employment income and property income.
That includes:
- income from your sole trader business
- expenses of that business
- UK property income
- UK property expenses
- foreign property income and expenses, where relevant
If you have more than one sole trader business, you need separate digital records for each business and separate quarterly updates for each one.
For UK property, HMRC treats your UK properties as one UK property business. That means you do not need a separate quarterly update for each individual UK rental property, although your records still need to be accurate.
Do You Need Digital Records for PAYE, Dividends or Pension Income?
Usually, no.
HMRC’s digital record rules for MTD Income Tax focus on self-employment and property income. Other income sources reported through Self Assessment, such as employment income under PAYE, dividends, State Pension and private pension income, do not have to be kept digitally for MTD Income Tax purposes.
You can choose to record some of those other income sources in software if it helps you get a fuller tax picture during the year, but they are not the core digital record-keeping requirement.
This is an important distinction for directors and mixed-income taxpayers. Being in Self Assessment does not automatically mean every income source must be digitally recorded under MTD.
Can You Still Use Spreadsheets?
In some cases, yes.
HMRC says you can continue using spreadsheets for your records, but you will still need software that links to those spreadsheets so you can send quarterly updates and submit your tax return. That is often described as bridging software.
The key point is that your records must remain digital. If you use more than one software product, the systems need to be digitally linked rather than relying on manual copying and pasting between them.
That is an area where businesses can accidentally create compliance problems, especially if they keep records one way and submit them another way without a proper digital process joining the two.
What If You Have Jointly Owned Rental Property?
This is one of the areas where people often assume the rules are more complicated than they really are.
If you jointly let a property, you only need to create digital records for your share of the income and expenses. You do not need to link your records to the other owner’s records.
There are also easements that can simplify the level of detail in some jointly let property records, which can be useful for landlords who want a workable system rather than an overly detailed one.
For landlords with jointly owned property, this is a good example of why getting the setup right early matters. The rules are manageable, but they are much easier when your bookkeeping process is built correctly from the start.
Do You Need to Record Every Single Adjustment During the Year?
Not always.
Some adjustments are dealt with later rather than transaction by transaction during the year.
For example:
- disallowable expenses do not have to be recorded in a separate way if you instead adjust the category total later
- simplified expenses can be used in some cases instead of keeping records of actual costs, if you are sure you will use that method
- part-business and part-private costs may be adjusted before finalising the tax position
This matters because many business owners think MTD means everything must be perfectly adjusted in real time from day one. In reality, quarterly updates are summaries. Some year-end adjustments still happen later.
What About Receipts and Supporting Documents?
MTD digital records do not replace your wider record-keeping responsibilities.
HMRC says you still need to keep the original records or supporting documents, or copies of them, that you use to prepare your tax return. So even if your software holds the transaction data, you should still keep proper evidence behind it.
For most businesses, good practice means:
- keeping invoices and receipts organised
- storing them digitally where possible
- making sure the figures in your software can be supported if needed
A Simple Checklist for Sole Traders and Landlords
If you want a practical starting point, check whether your current process allows you to do the following:
- Record income digitally.
- Record business or property expenses digitally.
- Attach the right date to each item.
- Put each item into the correct category.
- Keep separate records where you have separate sole trader businesses.
- Keep clear records of your share if property is jointly owned.
- Use software that can support quarterly updates and year-end submission.
- Keep supporting documents behind the figures.
If any of those points feel uncertain, your system probably needs attention before MTD becomes mandatory for you.
Why This Matters Now
For many business owners, the real risk is not the theory of MTD. It is poor preparation.
If your records are messy, incomplete, spread across paper, spreadsheets and bank statements, or handled differently every month, MTD will feel stressful. If your bookkeeping is clean and your software setup is sensible, the process is far more manageable.
That is why digital record-keeping is one of the best early areas to fix. It does not just help with compliance. It can also give you better visibility over cash flow, expenses and reporting during the year.
How AAR Certified Accountants Can Help
At AAR Certified Accountants, we help sole traders and landlords get MTD-ready in a practical, workable way.
We can help you:
- check whether MTD for Income Tax applies to you
- review whether your current bookkeeping system is suitable
- help you choose a sensible software approach
- set up digital records correctly for your business or property income
- reduce the risk of last-minute confusion before deadlines start
If you are unsure whether your records are MTD-ready, this is a good time to review your setup before the pressure builds.
Need Help Getting Your Records MTD-Ready?
If you want clear, practical support with bookkeeping, software setup, or understanding what HMRC expects, speak to AAR Certified Accountants.
We can help you put the right digital process in place before Making Tax Digital for Income Tax becomes a problem.
Contact AAR Certified Accountants today to review your MTD record-keeping setup.
Disclaimer: This article is for general information only and does not constitute personalised tax advice. HMRC guidance and legislation can change, and the right approach depends on your circumstances.