Making Tax Digital records sit at the heart of MTD for Income Tax.
If you are within scope, you must maintain digital records of your relevant self-employment or property income and expenses all year. These records supply the information needed for your quarterly updates to HMRC.
But what exactly should you record, what qualifies as a digital record, and how frequently should you update your bookkeeping?
Here is what you need to know.
What Making Tax Digital records do you need to keep?
Making Tax Digital records should include details about your relevant income and expenses related to business or property.
For each transaction, your digital records usually need to specify the amount, date, and the appropriate income or expense category.
Compatible software then uses these records to determine the totals needed for your quarterly Making Tax Digital updates.
Depending on your situation, your Making Tax Digital records might also include:
- Self-employment sales and other business income
- Property rental income
- Business expenses
- Relevant property expenses
- Customer invoices
- Supplier invoices and bills
- Payments received
- Refunds and credits
- Bank transactions
- Transaction dates
- Transaction amounts
- The appropriate income or expense category
The exact information required will vary based on your business and income sources.
What counts as a Making Tax Digital record?
A Making Tax Digital record involves creating and maintaining financial data electronically as part of your MTD bookkeeping process. This is a crucial point.
It does not mean just keeping your usual paperwork during the quarter and entering totals into software at the deadline.
You must incorporate your income and expenses into a digital record-keeping system.
For example, if you receive a £600 payment from a customer, your bookkeeping should record the amount, date, and category digitally. Similarly, if you pay £200 for a business expense, you must also document that transaction digitally.
The goal is to keep records updated continuously, avoiding the need to reconstruct several months of activity right before deadlines.
Why accurate Making Tax Digital records matter
Your quarterly updates depend on the data in your bookkeeping software.
If the records are inaccurate, the resulting information will also be flawed.
For example, a customer payment might be listed twice because it was entered manually and imported via a bank feed. Or, some expenses may not be recorded yet. The software can only sum totals based on the data it contains.
That’s why, even with automated bookkeeping features, Making Tax Digital records still require regular review.
Remember, digital tools do not automatically guarantee accuracy.
Do you still need to keep receipts and invoices?
Yes. Making Tax Digital changes the way financial records are maintained, but your broader obligation to keep supporting documents remains.
Invoices, receipts, bank statements, and other records still serve as evidence for transactions in your books. Digital receipt capture can simplify this process.
Instead of storing paper receipts in a drawer, you can photograph or scan them and save them with the related transaction in your bookkeeping system.
This makes it easier to locate information later if you or your bookkeeper need to verify a transaction.
Do you send every receipt to HMRC?
No. Your Making Tax Digital quarterly submission typically doesn’t require you to upload each receipt and invoice separately to HMRC.
Instead, your compatible software uses your digital records to sum up your income and expenses. You then submit these totals as part of your quarterly update.
Nevertheless, receiving these totals doesn’t diminish the importance of the underlying records.
Accurate bookkeeping is still essential because your figures must be based on precise records.
Making Tax Digital records for sole traders
If you are a sole trader under Making Tax Digital for Income Tax, your digital records will show your self-employed business’s financial activity.
For example, imagine running a plumbing business. In a month, you complete customer jobs, purchase materials, pay for fuel, receive payments from customers, and pay a monthly software fee.
Record these transactions in your digital bookkeeping software. Recording them regularly makes preparing for your quarterly updates much easier.
However, if you wait until the deadline, you might have to sift through months of bank transactions, receipts, and invoices in a short time.
Making Tax Digital records for landlords
Landlords using MTD must also maintain digital records of their property income and expenses.
This includes rental income and related costs for their property business.
If you have both self-employment and property income, staying organised with your bookkeeping is especially crucial.
Properly distinguishing between different activities in your digital records ensures accurate reporting under Making Tax Digital.
What if you have several properties?
You might own multiple rental properties but only run one UK property business for MTD record-keeping.
However, this doesn’t mean you should neglect maintaining detailed records to track your income and expenses for each property.
Clear records help you understand your financial activity and provide your accountant with the information they need when required.
Your bookkeeper can help you systematically organise these transactions within your bookkeeping system.
How often should you update your Making Tax Digital records?
The quarterly deadline should not be the point when you start your bookkeeping.
Making Tax Digital works best when records are kept consistently throughout the quarter.
For many businesses, doing monthly bookkeeping creates a manageable routine.
Instead of waiting three months, you regularly log transactions, reconcile bank statements, and address missing details.
By the time your quarterly review arrives, your bookkeeping should mostly be ready for inspection.
This also allows more time to fix any issues. Finding a missing invoice a few weeks after a transaction is generally easier than locating it months later.
What happens if you make a mistake?
Since bookkeeping errors are frequent, outsourcing a professional like Rosemary Bookkeeping is crucial.
You might record transactions twice, input the wrong amount, or assign a transaction to the incorrect category.
The key is to correct these mistakes as soon as you find them.
Regularly checking your Making Tax Digital records simplifies this process.
Bank reconciliation is especially helpful because it compares your bookkeeping records with your actual bank transactions. If there are missing entries or duplicates, reconciliation can highlight them.
Can you use spreadsheets for Making Tax Digital records?
Spreadsheets can be part of a Making Tax Digital process in some cases.
However, your setup must comply with HMRC’s digital record-keeping and linking rules. If data is transferred between different software, it might need to be through a proper digital link rather than manual copying.
This can make a seemingly simple spreadsheet process more complex.
If you use spreadsheets now, it’s advisable to verify whether your process will function correctly under MTD before your upcoming reporting deadline.
How do Making Tax Digital records become a quarterly update?
Your compatible software uses recorded digital data throughout the tax year to calculate quarterly figures.
For standard quarterly periods, key deadlines fall on August 7th, November 7th, February 7th, and May 7th. The software manages the submission process, while your bookkeeping provides the underlying information.
This distinction is important. Simply buying compatible software doesn’t guarantee your records are accurate or complete; you still need to maintain the data.
Are your Making Tax Digital records actually up to date?
Before your next quarterly deadline, reflect on these key questions:
- Have you documented all your income?
- Have you entered all your business or property expenses?
- Are there any unfamiliar transactions in your bank feed?
- Have you completed the bank reconciliation?
- Can you locate the receipts and invoices supporting your records?
- Are there any months of bookkeeping that are still unfinished?
If you can’t answer these questions confidently, you likely need to do some work before your next MTD update.
Why regular bookkeeping matters for MTD
Making Tax Digital emphasises consistent record-keeping, making it harder to overlook.
The quarterly reporting timeline requires ongoing attention to your bookkeeping all year.
Keeping your Making Tax Digital records up to date can minimise last-minute work, catch errors earlier, and simplify meeting each quarterly deadline.
Additionally, it provides a clearer overview of your business’s financial activity.
Rosemary Bookkeeping can help with your Making Tax Digital records
Knowing what records you need for Making Tax Digital is just the first step.
These records must also remain accurate, well-organised, and up to date.
Your local Rosemary Bookkeeper can help maintain your digital records, track income and expenses, reconcile accounts, spot missing information, and prepare your bookkeeping ahead of each MTD quarterly update.
Instead of viewing Making Tax Digital as four separate deadlines, ongoing bookkeeping helps you stay prepared year-round.
