To meet HMRC's rules you must keep a record of every item of business income and every business expense. If you are in scope of Making Tax Digital for Income Tax (MTD ITSA), you must keep those records digitally, in compatible software, from your start date. The crucial point: a photo or scan of a receipt on its own is not a digital record. The transaction data (date, amount and category) has to be captured digitally and flow by digital links, with no manual re-keying.
MTD for Income Tax is mandatory from 6 April 2026 for sole traders and landlords whose qualifying income is over £50,000. Roughly 860,000 taxpayers are in that first wave. Below we explain what counts as a digital record, who is affected, how long to keep everything, and a practical method to digitise your receipts that keeps you compliant.
What does HMRC require you to keep?
Every business, whether or not it is yet in MTD, has to keep complete and accurate records that support the figures on its return. For sole traders and landlords, HMRC expects you to keep:
- Sales and income invoices, plus records of any grants or other income.
- Receipts for business expenses and purchases.
- Bank and card statements covering the business.
- A mileage log where a vehicle is used both for business and privately.
- Records showing how you worked out any private-use adjustment.
If your gross trading income is £1,000 or less in the tax year, the trading allowance may mean you do not have to report it. You must register for Self Assessment once gross trading income passes £1,000.
What actually counts as a digital record under MTD?
Under MTD for Income Tax a digital record is a record of each business transaction held in functional compatible software. At a minimum it must capture:
- the date of the transaction,
- the amount, and
- the category or type of income or expense.
Data must then move between your products by digital links. A digital link is any transfer that does not involve manual copying or re-typing, for example a bank feed, an export and import between apps, or a formula-linked spreadsheet. The moment you manually re-key a figure from one place to another, you have broken the digital link, and that is exactly what MTD is designed to stop.
You do not have to keep the paper
Once the transaction detail is captured and preserved digitally, you do not have to keep the original paper receipt. What you must keep is the digital record itself. For a deeper look at how this plays out for property, see our guide on digital records for landlords.
Is a photo of a receipt a digital record?
No. This is the single most common misunderstanding, so it is worth stating plainly. A photograph or scan of a receipt is a useful capture tool, but on its own it is not a digital record for MTD. The image is just a picture. The digital record is the structured transaction data (date, amount, category) that your software creates from, or alongside, that image.
Modern receipt-capture apps blur the line because they photograph the receipt and read the figures off it in one step. That is fine, and genuinely helpful, but only because the app then stores the transaction digitally and links it onward. If all you do is keep a folder of photos, you are not compliant.
Who is in scope for MTD for Income Tax, and when?
MTD for Income Tax is being phased in by qualifying income, which is your gross turnover and gross rents before expenses, not your profit. The thresholds are assessed on the relevant Self Assessment return:
- From 6 April 2026: qualifying income over £50,000 (assessed on the 2024/25 return).
- From 6 April 2027: qualifying income over £30,000.
- From 6 April 2028: qualifying income over £20,000.
Being in scope means two things: you keep digital records, and you send quarterly updates to HMRC through compatible software. If you want the full picture of the regime, read our overview of Making Tax Digital for Income Tax, and for the property angle see MTD for landlords.
The 2026/27 quarterly deadlines
- Q1 (6 Apr to 5 Jul): due 7 August 2026.
- Q2 (6 Jul to 5 Oct): due 7 November 2026.
- Q3 (6 Oct to 5 Jan): due 7 February 2027.
- Q4 (6 Jan to 5 Apr): due 7 May 2027.
Your Final Declaration for 2026/27, which replaces the old Self Assessment return, is due 31 January 2028. There are no penalties for missing a quarterly update deadline in the 2026/27 tax year (a first-year grace period), although late-payment penalties still apply. The first quarterly deadline is the one to diarise.
How long do you have to keep your records?
Keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. HMRC may check your records to confirm the right tax has been paid, so the clock runs from the filing deadline, not from when you actually file.
Worked example
Say you run a 2025/26 sole-trader business. You file the return online by its deadline of 31 January 2027. You then need to keep the records for that year until at least 31 January 2032. The same five-year rule applies to your digital MTD records once you are in the regime. Our guide on how long to keep business records works through more scenarios.
How do you digitise receipts step by step?
A reliable, compliant routine looks like this:
- Capture at the point of spend. Photograph the receipt in your bookkeeping or receipt-capture app the moment you pay, before the paper fades or goes missing.
- Let the software read and create the record. Confirm the date, amount and category the app extracts. That structured data, not the image, is your digital record.
- Categorise correctly. Assign the right income or expense category, and flag anything with private use so the split is recorded.
- Keep the digital links intact. Allow data to flow by bank feed, import or linked spreadsheet. Never re-type a figure from one system into another.
- Reconcile to the bank feed. Match each transaction to the money that left or entered your account, so nothing is missed or double-counted.
- Review before each quarterly update. Check the quarter's figures in the software, then submit.
To estimate what you might owe on your profits while you set this up, try our self-employed tax calculator.
Can you use spreadsheets and bridging software?
Yes. HMRC does not force you to buy an all-in-one accounting package. A spreadsheet is a perfectly valid way to keep your digital records, provided it is joined to HMRC by bridging software that submits the quarterly updates, and provided the data moves by digital links rather than by re-typing. The figures must flow from the spreadsheet to HMRC without someone copying numbers by hand. See our walk-through of spreadsheets and digital links for how to set this up safely, and compare tools in our roundup of the best MTD software for small businesses.
Reassuringly, HMRC does not mandate any single app or brand. The only requirements are that your records are digital and that the links between products are digital.
Paper vs MTD-compliant digital: a side-by-side comparison
| Feature | Paper / manual approach | MTD-compliant digital approach |
|---|---|---|
| What counts as the record | A box of receipts, or photos saved in a folder | Structured transaction data (date, amount, category) in compatible software |
| Moving data between tools | Manual copying and re-typing into a return | Digital links only (bank feed, import, linked formula) |
| Re-keying figures | Routine, and error-prone | Not allowed: it breaks the digital link |
| Quarterly updates | Not possible | Four updates a year via software |
| Retention | Keep paper 5 years after the 31 Jan deadline | Keep digital records 5 years after the 31 Jan deadline |
| MTD compliance (from your start date) | Non-compliant | Compliant |
Common mistakes to avoid
- Paper only. Keeping a shoebox of receipts does not meet MTD, however neat it is.
- Photos with no transaction record. A gallery of receipt images is not a digital record on its own.
- Manual re-typing. Copying totals from an app into a spreadsheet, or from a spreadsheet into HMRC by hand, breaks the digital link. Use feeds, imports or linked formulas instead.
- Missing the private-use split. For costs like mileage, phone or home-as-office, record how you worked out the business portion.
- Leaving it to quarter-end. Capturing receipts in a weekly batch invites lost paper and guesswork. Capture at the point of spend.
If bookkeeping discipline is new to you, our primer on small business bookkeeping basics is a good starting point.
How Zmartly can help
Zmartly is a CIMA-regulated firm, and our qualified accountants set up MTD-ready record-keeping for sole traders and landlords every week: choosing the right software (or a spreadsheet plus bridging tool), wiring up the bank feed and digital links, and making sure your quarterly updates go in on time. If you would rather have the system set up properly once than worry about it every quarter, book a free call with Zmartly and we will map out exactly what you need before April.
Frequently asked questions
Does a photo of a receipt count as a digital record for MTD?
No. A photo or scan is a capture tool, not the record itself. The digital record is the transaction data (date, amount and category) stored in compatible software. Once that data is captured and preserved digitally, you do not have to keep the original paper.
Do I have to use a specific HMRC app to digitise receipts?
No. HMRC does not mandate any particular app or brand. It only requires that your records are kept digitally and that data moves between products by digital links, with no manual re-typing. A spreadsheet joined to HMRC by bridging software is a valid route.
When does MTD for Income Tax start, and who is affected?
It is mandatory from 6 April 2026 for sole traders and landlords with qualifying income (gross turnover and rents before expenses) over £50,000. The threshold falls to over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028.
How long do I keep my digital records?
At least five years after the 31 January submission deadline of the relevant tax year. For a 2025/26 return filed by 31 January 2027, that means keeping the records until at least 31 January 2032.
