MTD Digital Records: What Actually Counts in 2026

Ask ten sole traders what a "digital record" is under Making Tax Digital for Income Tax and you will get ten answers. Some think a folder of scanned receipts counts. Some think their bank's app is doing it for them. Some have concluded, reasonably enough, that their spreadsheet is now illegal.

None of those are quite right, and the confusion matters more this quarter than last. The first mandatory quarterly update passed on 7 August 2026. Q2 closes on 5 October and is due by 7 November. If your record keeping was improvised for the first one, this is the quarter to fix it — while there is still time to correct the underlying data rather than the submission.

What a digital record actually is

A digital record is the transaction data itself, held electronically: the date, the amount, and the category it falls into. That is it. Under Making Tax Digital for Income Tax you need this for each item of business or property income and each item of allowable expenditure.

Three consequences follow, and they are where most of the misunderstanding sits.

A bank statement is not a digital record. It is a record of money moving. It does not tell HMRC whether a £340 payment was stock, a capital purchase, or your own drawings. The categorisation is the part that makes it a record for MTD purposes, and no bank supplies it.

A photograph of a receipt is not a digital record either. It is a photograph. Storing images of receipts is sensible practice and HMRC has no objection to it, but the digital record is the line item you create from that receipt. The image is evidence supporting it.

Typing the figures in by hand is perfectly acceptable. There is no requirement to use bank feeds, automatic imports, or artificial intelligence. Manual entry into compatible software is a digital record. This surprises people who have been told they need an expensive platform.

Spreadsheets are still allowed

This is the point that gets lost most often. HMRC has never banned spreadsheets. Its software guidance explicitly accommodates them: you can keep your records in a spreadsheet and use bridging software to send the quarterly update to HMRC.

What HMRC does care about is how the figures travel. Once information exists in digital form, it is expected to move digitally rather than being retyped from one place into another. Retyping is where transposition errors are introduced, which is precisely what the rules are trying to eliminate.

So the practical shape for a spreadsheet user is: spreadsheet for the records, bridging software for the submission, and a digital link between them. Two jobs, and they are frequently sold as one thing, which is why so many people believe they must abandon a system that works.

The categories are where returns go wrong

A quarterly update is not a list of transactions. It is a summary of income and allowable expenses grouped into the categories HMRC expects. Which means the accuracy of your submission depends almost entirely on whether each transaction landed in the right bucket months earlier.

The recurring problems are consistent:

• Capital items treated as expenses. A laptop or a van is not an allowable expense in the ordinary sense; it belongs in capital allowances. Software that categorises by keyword will happily file it under equipment.
• Drawings recorded as costs. Money you take out of the business is not a business expense. It is a common and expensive error.
• Mixed personal and business spending. One card used for both, with no split applied, quietly inflates expenses.
• Categories renamed mid-year. "Travel" in April and "Motor expenses" in September produce two columns that should be one.
• Duplicated rows from bank exports. Re-downloading an overlapping date range is the single most common source of double-counted income.

If you have property income

Landlords have an additional layer. Property income is reported separately from self-employment, so if you have both you are keeping two sets of records, not one merged set. The mortgage interest restriction also means finance costs are not simply deducted as an expense — they are handled as a basic-rate tax reducer, and a general-purpose bookkeeping tool will not necessarily know that.

Jointly owned property brings its own treatment, and letting agent statements are rarely structured in a way that maps cleanly onto HMRC's categories. Most agents report gross rent with deductions netted off, which is not the same thing as the figures HMRC wants to see.

What good preparation looks like before 5 October

None of this requires a new platform. It requires a tidy quarter. A workable sequence:

1. Freeze a copy of your records at quarter end so the figures you check are the figures you submit.
2. Reconcile your totals against your actual bank movements. Any gap is a missing or duplicated transaction, and it is far easier to find now than in January.
3. Scan for duplicates, particularly around the dates where you exported bank data.
4. Check that every category used this quarter is one you also used last quarter.
5. Separate out anything capital before it reaches the expenses total.
6. Only then move the figures into your submission software.

It is worth knowing that HMRC has confirmed there are no penalty points for late or incorrect quarterly updates during the 2026 to 2027 tax year. That is genuine relief, and it should be read as room to get your process right rather than a reason to leave it. A tax return for the year cannot be finalised unless all four quarterly updates have been submitted, and errors carried across four quarters still have to be untangled at the end.

Getting the data right before it is submitted

The step people skip is the one between keeping records and submitting them: checking that what is in the spreadsheet is actually correct. Bridging tools map cells and transmit figures. They do not audit them.

TaxPrepUK exists for that gap. It takes the spreadsheet or bank export you already keep, classifies the transactions, flags duplicates and inconsistent categories, and produces a clean quarterly summary plus a health check report showing what it found — which you then take into whichever bridging software you use. It is a data preparation tool, not a bridging tool, and it never contacts HMRC. Everything runs in your browser, so your figures stay on your device. The free tier allows one export a month if you want to point it at your current quarter and see what it catches.

Whatever you use, the principle holds: the quarterly update is only as good as the categorisation that happened months before it. Fix that, and the submission becomes the easy part.