MTD for Income Tax went live on 6 April 2026, and most of the conversation so far has been about deadlines and software. But the part that trips people up day-to-day is simpler than that: what records do you actually need to keep, and how do they need to be stored? Get this wrong, and your quarterly updates won't submit cleanly - or worse, HMRC flags your records as non-compliant down the line.
TL;DR: Under MTD, sole traders and landlords must record the date, amount, and category of every business transaction digitally. Spreadsheets count, but only if they're linked to submission software through a digital connection. Copy-pasting figures into a separate tool breaks the rules. You must keep these records for at least five years.
What Records Must You Keep Digitally?
HMRC's requirements are more specific than "keep your receipts." Under MTD for Income Tax, you must record three things for every business transaction: the date it happened, the amount, and the category it falls under (GOV.UK, 2026).
That means every sale, every expense, every refund. Not monthly totals, not a quarterly summary after the fact - individual transactions, logged as they happen or shortly after. Around 780,000 sole traders and landlords with income above £50,000 are now required to do this (GOV.UK, 2026). That number rises to roughly 1.75 million from April 2027 when the threshold drops to £30,000 (House of Commons Library, 2025).
Do You Need to Scan Every Receipt?
No. This is one of the most common misunderstandings we see with clients preparing for MTD. HMRC does not require you to keep scanned or digital copies of invoices and receipts (TaxCalc, 2026). You can keep paper receipts if that works for you.
What must be digital is the record of the transaction itself - the date, amount, and category entered into software or a spreadsheet. So if you buy printer ink for £45 on 12 May, that transaction needs to exist as a digital entry somewhere. The paper receipt can stay in your filing cabinet.
That said, in our experience, going fully digital with receipt storage makes life easier when HMRC asks questions. Apps like Dext and AutoEntry photograph receipts and feed the data straight into your accounting software, which saves time and reduces the chance of a missed entry.
What Counts as a "Digital Link"?
This is where MTD gets technical. A digital link is any electronic transfer of data between software programs where the figures move without manual re-entry (Sage, 2026). If your data flows from a spreadsheet into submission software through a formula, CSV import, or API connection, that counts.
What does not count: copying a number from one spreadsheet and typing it into another program. Cut-and-paste between applications also breaks the digital link rule. HMRC has been clear on this since the MTD for VAT rollout, and the same standard applies to Income Tax (ICAEW TAXguide 01/25, 2025).
In practice, most people won't need to think about digital links if they use a single cloud accounting platform like Xero, QuickBooks, or FreeAgent. The issue only arises when you're combining tools - a spreadsheet for tracking plus separate software for filing. We covered the broader MTD timeline and signup process in our guide to Making Tax Digital changes.
Can You Still Use Spreadsheets?
Yes, but with conditions. HMRC recognises spreadsheets as a valid way to maintain digital records under MTD (TaxCalc, 2026). You don't need cloud-based software. Records can sit on your local machine or network.
The catch is submission. A spreadsheet on its own cannot file quarterly updates with HMRC. You need bridging software that reads your spreadsheet data and submits it through the MTD API. Options include VitalTax, My Tax Digital, AbraTax, and several others listed on GOV.UK's software directory. Most bridging tools cost between £10 and £25 per year.
What we see most often is people starting with a spreadsheet-plus-bridging setup and then switching to full accounting software within six months. The bridging route works, but maintaining a tidy spreadsheet that stays digitally linked takes more discipline than most sole traders expect.
How Long Must You Keep Digital Records?
Five years from the 31 January submission deadline for that tax year (HMRC, 2026). For the 2026/27 tax year, that means your records need to be accessible until at least 31 January 2033.
This applies to the digital transaction records, not just the quarterly summaries you submit. If you switch software during that period, you'll need to either export your data or keep access to the old platform. We've written about choosing between cloud accounting platforms - migration planning is part of that decision.
What Are the Quarterly Deadlines?
For the 2026/27 tax year, the four quarterly updates follow a fixed calendar (MTD.digital, 2026):
- Q1 (6 Apr - 5 Jul 2026): due 7 August 2026
- Q2 (6 Jul - 5 Oct 2026): due 7 November 2026
- Q3 (6 Oct 2026 - 5 Jan 2027): due 7 February 2027
- Q4 (6 Jan - 5 Apr 2027): due 7 May 2027
The Final Declaration (replacing the old SA100 self-assessment return) is due by 31 January 2028. HMRC has confirmed that no penalty points will apply for late quarterly updates during the 2026/27 tax year (ATT, 2026), but the Final Declaration deadline still carries penalties as normal.
From April 2027, the points-based penalty system starts. Each missed quarterly deadline earns one penalty point. Hit four points within 24 months and HMRC issues a £200 fine, with £200 for each late submission after that (ICAEW, 2026).
What Mistakes Should You Avoid?
One question clients always ask is what actually goes wrong with MTD record keeping. Based on what we've seen with early adopters during the HMRC pilot, the common errors fall into a few patterns.
Recording monthly totals instead of individual transactions. HMRC requires transaction-level data. A line that says "May expenses - £1,200" won't cut it. Each purchase needs its own entry with the date, amount, and category.
Breaking the digital link with copy-paste. If you track expenses in Excel and then manually type the totals into filing software, you've broken the chain. Use a formula link, CSV export, or API connection instead.
Mixing personal and business transactions in one account. This was already a problem before MTD, but quarterly reporting makes it harder to unpick. If personal spending sits alongside business expenses, your quarterly update will include figures that shouldn't be there. A dedicated business bank account solves this - and we've covered practical bookkeeping checks that keep your records clean. If you're still weighing up your business structure, our comparison of sole trader vs limited company covers the tax and admin differences.
Forgetting about property income. If you're a sole trader who also rents out a property, both income sources count toward the £50,000 threshold. Each source needs its own set of digital records and its own quarterly update (GOV.UK, 2026).
Frequently Asked Questions
Does MTD replace self-assessment entirely?
Not yet. MTD for Income Tax adds quarterly updates on top of the existing reporting framework. You still file a Final Declaration by 31 January, which serves the same function as the old SA100 return. The quarterly updates feed into that final submission. HMRC has described this as "replacing" self-assessment, but in practice the Final Declaration is still there under a different name.
What if my income drops below £50,000 mid-year?
Once you're in MTD, you stay in for that tax year. The threshold is based on your qualifying income from the previous tax year (2025/26 for the first wave). If your income drops below the threshold in future years, you can ask HMRC to remove you from MTD obligations, but you'll need to demonstrate the change is sustained (GOV.UK, 2026).
Can my accountant handle the quarterly updates for me?
Yes. Your accountant can submit quarterly updates on your behalf using agent services. But you still need to maintain the underlying digital records. Your accountant can't file accurate quarterly updates if the records don't exist or arrive as a box of receipts every three months. The record-keeping responsibility sits with you.
Is there free software available for MTD?
Several HMRC-recognised options are free or very low cost. QuickFile, Sage Individual, and Self Assessment Direct all offer free tiers. Coconut and ANNA Money provide MTD-compatible features within their business banking apps. The full list is on GOV.UK's software directory. If you're already using Xero or similar platforms, your existing subscription likely covers MTD filing already.
If you're not sure whether your current record-keeping setup meets HMRC's MTD requirements, get in touch. We work with sole traders and landlords across the UK and can review your digital records, recommend compatible software, and make sure your first quarterly update goes smoothly.