A digital record is not “a spreadsheet”. It is a specific set of data fields, held in compatible software, that must reach HMRC without anyone retyping it.
That last part is where most businesses fail. You can keep immaculate records in Excel and still breach Making Tax Digital if you copy a figure from one place to another by hand. Here is exactly what has to be recorded, in what form, under both regimes.
Two regimes, different requirements
Making Tax Digital is not one rule set. VAT and Income Tax have separate obligations, software recognition and penalty points.
| MTD for VAT | MTD for Income Tax | |
|---|---|---|
| Who | All VAT-registered businesses | Sole traders and landlords in scope |
| In force | Now, for everyone registered | 6 April 2026 for qualifying income over £50,000 |
| Filing | VAT return, 1 calendar month and 7 days after the period end | Quarterly updates: 7 Aug, 7 Nov, 7 Feb, 7 May, plus a year-end return |
| Governing guidance | VAT Notice 700/22 | Use Making Tax Digital for Income Tax; the digital record-keeping direction |
The Income Tax thresholds step down: over £30,000 from 6 April 2027 (measured on 2025/26) and over £20,000 from 6 April 2028 (measured on 2026/27). HMRC identifies who is in scope and writes to confirm.
What a digital record must contain: Income Tax
For each item of income or expense you record the:
- amount
- date the income was received or the expense was incurred
- category
Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment. If your chart of accounts already maps to your tax return, you have done most of the work.
You create digital records only for self-employment and property income and expenses. Dividends, savings interest, pensions and partnership profit shares are outside the requirement, though you may include them. Reliefs and allowances such as capital allowances also go in the software.
Structure matters:
- More than one sole trade? Separate digital records and separate quarterly updates for each.
- UK property? All UK properties are legally one “UK property business”. One set of records, one quarterly update, and your share of jointly let property forms part of it.
- Foreign property? Separate digital records for each individual property, which the software aggregates into a single foreign property business update.
What a digital record must contain: VAT
VAT is far more prescriptive. The regulations call the digital element your electronic account, and VAT Notice 700/22 sets out exactly what goes in it.
Designatory data — your business name, the address of your principal place of business, your VAT registration number, and any VAT accounting schemes you use.
For each supply you make — the time of supply (tax point), the value of the supply excluding VAT, and the rate of VAT charged. Plus a record of output value for the period split between standard-rate, reduced-rate, zero-rate, exempt, and outside the scope of UK VAT where required.
For each supply you receive — the time of supply, the value of the supply, and the amount of input tax you will claim. There is no requirement to split inputs for the period by VAT rate.
Summary data — total output tax owed on sales, total tax owed on and input tax allowable on acquisitions from EU member states, total tax payable under a reverse charge, total input tax claimable, error correction adjustments, and any other adjustment required by the VAT rules. A total of each type of adjustment must be recorded as a separate line.
Only supplies that go on your VAT return belong in the electronic account — wages to employees and intra-group supplies within a VAT group do not.
The digital links rule, and why copy-paste breaks it
VAT Notice 700/22 puts it plainly: once data has been entered into the software you use to keep your electronic account, any further transfer, recapture or modification of that data must be done using digital links. Manually transferring data within or between programs is not acceptable.
HMRC accepts these as digital links:
- Linked cells in spreadsheets — a formula in one sheet mirroring a value in another
- Emailing a spreadsheet containing digital records so it can be imported elsewhere
- Putting records on a memory stick and handing it to someone who imports them
- XML and CSV import and export, and downloading and uploading files
- Automated data transfer
- API transfer
HMRC does not accept the use of “cut and paste” or “copy and paste” to select and move information. That is the entire rule.
The Income Tax guidance mirrors it: once a digital record has been sent to HMRC in a quarterly update, you must not manually move it — no writing it out in another cell, no copy and paste.
Spreadsheets are still allowed. One can form part of functional compatible software provided it sits alongside something that can talk to HMRC’s API, and the connection between them is a digital link rather than a person retyping.
Bridging software and API-enabled spreadsheets
If your records live somewhere that cannot file, you need a bridge. Bridging software incorporates the relevant Making Tax Digital APIs to connect accounting software to HMRC systems. API-enabled spreadsheets incorporate the APIs directly — they either combine with accounting software to submit, or keep the digital records and submit the VAT information themselves.
Either is legitimate. Neither excuses a manual step in the chain.
Where you do not need a digital link
Not everything has to be joined up.
For VAT, software that is not used to maintain your electronic account — sales invoicing, a general ledger — needs no digital link when data moves across. Nor do the inputs to an adjustment calculation done outside the software.
For Income Tax, no link is needed to income that is not self-employment or property income, to software not used to create those records (a booking system, a till), or to software used only to submit your tax return. Landlords who jointly let a property need no link to the other landlord’s records.
The easements worth knowing
Both regimes contain relaxations that materially reduce the work. Most guidance ignores them.
| Easement | Regime | What it allows |
|---|---|---|
| Petty cash | VAT | Individual purchases under £50 VAT-inclusive recorded as a single entry, up to £500 VAT-inclusive per entry |
| Supplier statements | VAT | Record totals from a supplier statement rather than individual invoices, where all supplies are on the same return and the total VAT at each rate is shown |
| Third-party agents | VAT | A summary document from an agent treated as one invoice received |
| Charity fundraising events | VAT | All supplies made treated as one invoice, all supplies received as one invoice |
| Retail schemes | VAT | A digital record of daily gross takings, not the supplies behind it |
| Flat Rate Scheme | VAT | No digital record of purchases, except capital expenditure goods on which input tax can be claimed |
| Simpler categorisation | Income Tax | Categorise simply as income or expense per source, instead of the full category list — where turnover is below the VAT threshold, and separately where you have foreign income |
| Retail sales | Income Tax | A single digital record of daily gross takings for the tax year |
| Jointly let property | Income Tax | A single entry per expense category per tax year; and, for an eligible person, a single entry per income category per quarter |
Two conditions on the turnover route into the simpler categorisation: it applies where annual turnover from self-employment or UK property is below the VAT registration threshold of £90,000, and residential property finance costs such as mortgage interest must still be recorded and reported separately. But turnover is not the only route in — the direction also allows the simplified categorisation where you have foreign income, and the £90,000 test does not govern that one.
The jointly let property easement carries a condition of its own that is easy to miss. The relaxation on income — one entry per income category per quarter — is available only to an eligible person, which the direction defines as someone who chooses to report only the income from the jointly let property and not the expenses. Report the expenses too and you are outside the income easement.
These easements sit in HMRC’s digital record-keeping direction, made under regulation 15 of the Income Tax (Digital Obligations) Regulations 2026.
What you still keep outside the software
Digital record keeping does not replace your paperwork. For Income Tax, HMRC is explicit that you must continue keeping records as you normally do for Self Assessment, including the original records and supporting documents used to prepare your return.
For VAT, some records must by law be preserved in their original form — an import VAT certificate (C79) is the standard example. And one distinction matters: if you type selected data from an invoice into your software, keep the invoice, because your entry is not a copy of it. If your software scans it and the retained image contains all the detail required for VAT purposes, you do not need the original unless something else requires it.
Retention periods do not change under MTD. VAT records: 6 years — or 10 years if you use the VAT One Stop Shop (OSS) scheme, or used the VAT Mini One Stop Shop (MOSS) scheme. Self-employed or landlord records: 5 years after the 31 January submission deadline.
Frequently asked questions
Can I still use spreadsheets under Making Tax Digital?
Yes. A spreadsheet can form part of functional compatible software as long as it is used alongside a product that can submit to HMRC’s API, and the connection between them is a digital link rather than manual retyping. Bridging software and API-enabled spreadsheets both do this legitimately.
Why is copy and paste not allowed under MTD?
Because HMRC does not treat it as a digital link. VAT Notice 700/22 states that once data is in the software maintaining your electronic account, any further transfer or recapture must be digital, and that HMRC does not consider cut and paste or copy and paste to be a digital link. The Income Tax guidance says the same.
What has to be recorded digitally for MTD for Income Tax?
For each item of self-employment or property income and expense: the amount, the date it was received or incurred, and the category. MTD for Income Tax uses the same categories of income and expenses as Self Assessment. You also record reliefs and allowances such as capital allowances in your software.
Do I have to record every single transaction digitally for VAT?
Not in every case. HMRC allows petty cash purchases under £50 VAT-inclusive to be recorded as a single entry up to £500 VAT-inclusive, totals to be taken from supplier statements where all supplies fall on the same return, and daily gross takings to stand in for individual retail sales. These relaxations have the force of law.
Get your digital records set up correctly
SmartFiling runs bookkeeping on flexible plans with digital records structured to meet Making Tax Digital for both VAT and Income Tax — correct fields, correct categories, and a digital journey from your bank to HMRC with no manual step in the middle. We work with Xero, QuickBooks, FreeAgent, Sage and Dext.
Fixed fees agreed upfront, fully online, every submission reviewed by an ICAEW Chartered Accountant.
SmartFiling is the trading name of Ballards Newman (Finchley) Limited, an ICAEW-regulated London practice with over twenty years of UK tax and compliance experience.
