What digital records do you have to keep for Making Tax Digital?

Digital record keeping sounds like the biggest change in Making Tax Digital and is usually the smallest. The requirement is narrower than the phrase suggests, and for a one-van business turning over less than £90,000 it is narrower still. Here is what is genuinely required, and what people assume is required but is not.

Three fields per transaction

A digital record needs the amount, the date the income was received or the expense incurred, and the category it falls into. That is the whole requirement per transaction. Money in, money out, when, and what kind.

The categories are the ones you already know from the self-employment and property pages of a Self Assessment return, so this is not new vocabulary, just new timing.

Under £90,000? You can collapse the categories

This is the concession most worth knowing about, and it is the one that decides how much work Making Tax Digital actually creates for a sole trader. If your turnover from a source of self-employment is below £90,000, which is the VAT registration threshold, you may categorise your digital records in less detail: simply as income or as an expense, rather than splitting expenses across the detailed categories.

For a trade where the year is mostly materials, fuel, tools and the van, that removes the single most tedious part of the job. Residential landlords have one carve-out even under the simpler option: restricted finance costs still have to be identified separately.

What you do NOT have to do

• You do not have to photograph or scan receipts. The digital record is the transaction data, not an image of the paperwork.
• You do not send receipts or invoices to HMRC. Quarterly updates carry category totals only; HMRC does not receive details of individual records.
• You do not have to abandon spreadsheets. A spreadsheet is fine provided it connects to bridging software that can file for you.
• You do not have to re-enter anything you already invoice through software. If it is already digital and categorised, it already counts.

That first point catches a lot of people out in the reassuring direction. The shoebox is not banned. What changes is that the numbers from it have to live in software rather than being added up once a year.

What you must still keep the old way

Digital records sit alongside your existing obligations, they do not replace them. You must continue keeping the original records and supporting documents you use to prepare your return, such as bank statements and invoices. Making Tax Digital adds a digital summary layer; it does not license a bonfire.

Retention is longer than many expect: digital records must be kept for at least five years after the 31 January submission deadline for the tax year they relate to. Whatever you use has to still be readable in five years, which is an argument against a spreadsheet on one laptop.

Spreadsheets, software, or both

There are two legitimate routes. Compatible software that keeps the records and files the updates in one place, or a spreadsheet plus bridging software that reads it and files on your behalf. HMRC publishes a list of software that works with Making Tax Digital for Income Tax, and checking a product appears on it is worth doing before you pay for anything.

The practical question is not which is compliant, since both are. It is which one you will actually keep up with in week nine of a busy quarter.

Record as you go, not as you file

HMRC's advice is to create digital records as close to the date of the transaction as possible. That is framed as a benefit, and for once the framing is fair: the whole point of quarterly reporting is a business you can see in something close to real time. Reconstructed quarterly, it is just Self Assessment four times over, which is the worst of both worlds.