Episode 4: digital records for MTD for Income Tax, without the jargon
This is the day to day part of Making Tax Digital for Income Tax. Once you know whether you’re in scope and you’ve seen the quarterly deadlines, the next question is always the same. What do I actually need to keep, and how do I do it without turning bookkeeping into my life?
HMRC call it “digital records”. That phrase makes it sound more complicated than it is. In practice, it’s just a consistent way of recording income and expenses in a digital format, so your quarterly updates are based on real records rather than guesswork.
If you want the context, Episode 1 explains what MTD is and who it applies to. Episode 2 explains qualifying income and thresholds. Episode 3 explains the quarterly deadlines and what the updates are.
Internal links: Episode 1, Episode 2, Episode 3
If you want help setting this up properly and keeping it on track, we can do that. You can start here: Making Tax Digital support
What HMRC mean by “digital records”
HMRC’s guidance says you must create and store digital records of your self employment and property income and expenses.
In plain English, this means the details of your income and expenses need to be recorded in software, an app, or spreadsheets that are linked to bridging software. It does not mean you need a complex finance department. It means your records cannot live only in a notebook, a bag of receipts, or “I’ll sort it in January”.
If you like seeing the black and white directly from HMRC, this is their digital records guidance.
The minimum you must record, and why it’s simpler than people think
HMRC’s minimum record keeping requirement is not huge. Their guidance focuses on recording the amount, the date, and the category of the income or expense.
That’s it. The goal is consistency. If you capture things as you go, your quarterly updates are just a reflection of what you’ve already recorded.
Where people struggle is not the rules. It’s the backlog. If you fall behind for three months, even a simple system feels hard.
What this looks like in real life for a sole trader
For sole traders, the day to day objective is that your sales and your costs are captured digitally in a way you can actually maintain. That might be invoicing through an app, importing bank transactions, or keeping a spreadsheet that you update weekly.
The key is that the records reflect reality. If money comes in, it needs to appear as income in your system. If you incur a cost, it needs to appear as an expense. When that happens regularly, you stop having those awful “where did the year go” moments.
It’s also the easiest way to avoid surprises. If your records are current, you can see your profit trend during the year, not just when the tax return is due.
What this looks like in real life for a landlord
For landlords, the system is often simpler than people expect. You want your rent receipts recorded, and you want your main property costs recorded. That includes things like repairs, maintenance, insurance, and any agent costs.
If you’ve got multiple properties, the only extra step is clarity. You need to know which income and which expenses belong to which property, otherwise the year end becomes messy and you lose confidence in the numbers.
A landlord’s admin becomes manageable when it stops being “a folder of stuff” and starts being a tidy running record you can trust.
If you have a trade and property income, or two trades, how does it work?
This is where the setup matters.
HMRC guidance on quarterly updates refers to sending updates for each self employment and property income source. That’s the technical wording. In everyday terms, it normally means your software needs to keep those streams separate so the reporting makes sense.
Most people don’t need two separate lives or two separate logins. They need one setup that clearly separates the trade from the property, or separates trade one from trade two, so quarterly updates aren’t confusing.
If you’ve got a more complex setup, this is usually the moment where getting a professional setup pays off. It’s far quicker to build it correctly at the start than to fix it later.
Do I have to use software, or can I use spreadsheets?
You need to use compatible software for MTD for Income Tax, but that doesn’t automatically mean you need a full bookkeeping package if you don’t want one.
HMRC explain that if you use spreadsheets to keep your records, bridging software can be used to connect those spreadsheets to HMRC for submissions.
The important point is this. Whatever approach you use, it needs to be something you will actually stick to. A simple system you maintain beats a “perfect” system you abandon after two weeks.
If you want to check what software HMRC class as compatible, this is their list.
A simple routine that stops this becoming a headache
The best way to make MTD manageable is not to “do the quarter” in one sitting. It’s to keep the admin light while the quarter is happening.
A quick weekly habit of capturing invoices and keeping on top of transactions, plus a short monthly sense check, means the quarter end becomes a review and a submit rather than a rebuild.
If you do nothing else, aim for no backlog. Backlog is what makes people hate bookkeeping.
Common mistakes that cause stress later
The mistakes we see are usually boring, not dramatic. People mix personal and business spending, lose track of cash items, can’t find invoices, or wait until the deadline week and then panic.
You don’t need perfection to avoid this. You need a system that reduces noise. A separate business bank account helps, and a routine that keeps records tidy helps even more.
If you’re local to Sutton Coldfield or Birmingham
If you’re a sole trader or landlord around Sutton Coldfield, Birmingham, Solihull, Tamworth, or the wider West Midlands, we can set this up and keep the quarterly routine running, so you stay compliant without it taking over your life.
A lot of people don’t want to become “good at admin”. They just want it handled properly, with a system that works and someone keeping them on track.
If that sounds like you, have a look at our MTD service page, or just get in touch and we’ll talk it through.
FAQs: digital records for MTD for Income Tax
What are digital records, in plain English?
They are a digital record of your income and expenses, stored in software or spreadsheets linked to compatible software, so you can submit quarterly updates.
What is the minimum I need to record?
HMRC focus on recording the amount, date, and category of income and expenses. Their guidance is here.
Can I still use spreadsheets?
Yes, if you use bridging software or another compatible setup. HMRC explain compatible software here.
Where do quarterly updates fit into this?
Quarterly updates are submitted from your digital records. HMRC’s quarterly updates guidance is here.
Coming next, and how to get help
Next week we’ll cover software properly. Not a sales pitch. Just what you actually need, what you probably don’t, and how to choose a setup that works for landlords and sole traders without overpaying.
If you’d like to know how Daykin Scott can help you with Making Tax Digital for Income Tax, get in touch today and we’ll talk you through what the setup looks like and how we keep it running quarter to quarter.
