A Complete Guide to Keeping Digital Records for MTD for Income Tax (2026 Update)

Introduction

From 6 April 2026, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will change how many sole traders and landlords report their income to HMRC. If your combined trading and property income for the 2024/25 tax year is £50,000 or more, you’ll need to follow the new digital rules.

This guide explains who is affected, what digital records you must keep, the software you’ll need, and how to stay compliant.

What is MTD for Income Tax?

MTD for ITSA is part of HMRC’s wider digital transformation programme. It requires eligible sole traders and unincorporated landlords to:

• Keep digital records of income and expenses

• Submit quarterly updates to HMRC

• Use MTD-compatible software

The aim is to improve accuracy, reduce errors, and modernise the UK tax system.

Who Needs to Comply from April 2026?

From 6 April 2026, the rules will apply to:

• Sole traders

• Unincorporated landlords

If your total trading and property income in 2024/25 is £50,000 or more, you must follow MTD for ITSA.

If you have other sources of income (for example, dividends or employment income), you do not need to keep those records digitally under MTD rules.

What Are Digital Records?

A digital record is income and expense data that is:

• Created and stored electronically

• Maintained in software compatible with MTD

• Submitted directly to HMRC without manual copying

For example:

• A sole trader must keep digital records of business income and expenses.

• A landlord must keep digital records of property income and property-related expenses.

The data recorded must include:

• The amount

• The date received or paid

• The category of income or expense

The categories used are the same as those in the Self-Assessment tax return.

Choosing the Right Software

To comply with MTD for ITSA, you’ll need compatible software. There are two main options:

1. Full MTD-Compatible Accounting Software

This type of software:

• Creates digital records

• Submits updates directly to HMRC

2. Bridging Software

If you prefer using spreadsheets, bridging software can connect your spreadsheet to HMRC’s systems.

However, you must ensure there is a digital link between systems. Manually copying or pasting figures from a spreadsheet into submission software is not allowed.

You can:

• Use one software solution that handles everything

• Use multiple tools, as long as they are digitally linked

What Records Must Be Kept Digitally?

Under MTD for ITSA, the following must be recorded digitally:

Self-Employment Income

• Sales

• Fees

• Daily takings

Self-Employment Expenses

• Cost of goods

• Travel expenses

• Office costs

• Rent

• Utilities

Property Income

• Rent

• Lease premiums

• Reverse premiums

• Inducements

Property Expenses

• Repairs

• Maintenance

• Travel costs

Multiple Businesses and Property Portfolios

If you run more than one business, you must:

• Keep separate digital records for each business

• Submit separate quarterly updates for each

Landlords must also:

• Keep UK property income separate from foreign property income

Jointly Let Properties

If you jointly own and let a property, you only need to maintain digital records for your share of income and expenses.

There is also an option to:

• Keep simplified records

• Exclude jointly let property income from quarterly updates

• Include it when finalising the year-end position

Turnover Below the VAT Threshold (£90,000)

If your annual turnover from a single self-employment is £90,000 or less, simplified record-keeping applies.

You only need to record whether a transaction is:

• Income, or

• Expense

No detailed categorisation is required.

Landlords of residential properties must also indicate whether an expense is a restricted finance cost.

Once turnover exceeds £90,000, full categorisation becomes mandatory.

Special Rules for Retailers

Retailers are allowed to record:

• Gross daily takings

You do not need to log each individual sale separately.

How Long Must You Keep Digital Records?

Digital records must be kept for at least five years from the 31 January submission deadline following the relevant tax year.

For example:
For the 2026/27 tax year, records must be retained until 31 January 2033.

Final Thoughts

MTD for Income Tax is a major shift for sole traders and landlords. Preparing early by choosing the right software and understanding your digital record-keeping obligations will make the transition much smoother.

If you fall within the £50,000 threshold, now is the time to review your systems and ensure you’re ready for April 2026.

                                                For more information, Book a Free Consultation