What records need to be kept digitally under MTD rules?

Understanding what “digital records” means under MTD

Making Tax Digital (MTD) is HMRC’s programme to modernise the UK tax system by moving more tax administration into software. At its core, MTD changes not only how certain taxpayers submit information to HMRC, but also how they keep their underlying business records. If you are within the scope of MTD for a particular tax, you are generally expected to keep specific records in a digital form and to use compatible software to maintain those records and send required updates or returns to HMRC.

“Digital records” under MTD does not simply mean “having a PDF of your invoices somewhere” or “storing paper records in a filing cabinet and typing totals into a spreadsheet at the end of the quarter.” MTD is aimed at reducing transcription and rounding errors that can happen when figures are copied manually from one system to another. That’s why the rules emphasise maintaining certain information digitally and, where more than one piece of software is used, transferring data between them via digital links rather than re-keying it.

This article explains what records must be kept digitally under MTD rules, focusing primarily on the requirements that are currently most relevant in practice (especially MTD for VAT). It also covers how to interpret “digital record keeping” in everyday terms, what information needs to be captured, and practical ways to comply without turning your bookkeeping into a technical project.

Which MTD rules are people usually talking about?

When most UK businesses ask “What records need to be kept digitally under MTD rules?”, they are usually referring to MTD for VAT, because it has been the most widely implemented and affects a broad range of businesses. MTD for Income Tax Self Assessment (often abbreviated as MTD for ITSA) has also been widely discussed and is expected to expand digital record keeping for certain self-employed individuals and landlords. MTD for Corporation Tax has been mentioned by HMRC as part of the broader vision, but the day-to-day record keeping questions most commonly arise for VAT right now.

Even though the exact scope and timing can vary by tax type, the overall theme is consistent: if you are required to follow MTD for a given tax, you must keep certain records digitally and submit required information through compatible software. The detail of which records must be kept digitally depends on the tax and the nature of your activities, but the safest way to think about it is that the key transactional information you would normally use to prepare your VAT return (or other tax submission) should be captured and preserved digitally.

What counts as a “record” for MTD purposes?

A “record” is not just a document. Under MTD, a record includes the data that supports your tax calculations: dates, amounts, VAT rates, and other details that determine what you owe or can reclaim. Many businesses have historically relied on a mixture of paper invoices, emailed PDFs, bank statements, and occasional spreadsheets. Under MTD, the emphasis shifts to structured data stored in a digital system—data that can be read, calculated, and transferred without manual re-entry.

That does not mean you must eliminate paper entirely. You can still receive paper invoices, or you might still have physical till receipts. But if you are within scope of MTD, the relevant information from those documents generally needs to be captured into a digital record-keeping system in a way that meets the MTD requirements. The point is that the “record of account” for VAT (and other MTD taxes) is expected to live digitally.

Core principle: keep the underlying transactional data digitally

Before diving into specific lists, it helps to understand the core principle that ties the rules together. To comply, you normally need to maintain digital records of:

1) the transactions that create your tax liability or entitlement (sales and purchases), and
2) the key information needed to determine the tax treatment of those transactions (such as VAT rate and amount), and
3) certain summary totals that feed into the VAT return (and, where applicable, adjustments).

If your business uses accounting software, it will usually store this information automatically as you raise sales invoices, record bills, and match bank transactions. If you use spreadsheets, you can still comply for VAT provided the overall process meets the MTD requirements and you submit via compatible bridging software (and maintain digital links where required). The important part is that the required data exists digitally and can be produced if asked.

MTD for VAT: the main set of digital record-keeping requirements

For MTD for VAT, HMRC expects VAT-registered businesses in scope to keep certain records digitally. In practical terms, you should be able to show your sales and purchase records, the VAT calculations derived from those records, and the totals that appear on your VAT return. The records are often described as “designatory data” (key transaction details) plus the VAT account (a summary of VAT payable and reclaimable).

Digital records you must keep for sales (outputs)

Sales records (also called output tax records) are the foundation for determining VAT you owe. Under MTD, the essential information you generally need to record digitally for each sale includes:

Date of supply (tax point): The date that determines when the VAT becomes due. In many cases this aligns with the invoice date, but it may differ depending on the tax point rules.

Value of the supply: The net value (excluding VAT) of the sale, usually broken down by VAT rate if you have multiple VAT rates in the same period.

VAT amount charged: The VAT charged on the sale, again typically captured per VAT rate.

VAT rate applied: Whether the sale is standard-rated, reduced-rated, zero-rated, exempt, or outside the scope. Accounting software often stores this as a tax code, but the underlying meaning should be clear.

Customer information (where relevant): While the MTD VAT digital record rules focus on transaction data rather than full invoice retention, many businesses will store customer name and invoice number as part of normal bookkeeping. This is not only good practice; it can also help you evidence your position if HMRC asks questions.

Adjustments and special cases: Some sales require special VAT treatment (for example, reverse charge services in certain contexts, margin schemes, or retail schemes). If you use a scheme, you may need additional digital records specific to that scheme (covered later).

In plain English: for each sale, your digital system should record when it happened, how much it was (net), what VAT rate was applied, and the VAT amount. Those details must be maintained in a way that allows your VAT return totals to be derived.

Digital records you must keep for purchases (inputs)

Purchase records (also called input tax records) support VAT you reclaim. The essential information you generally need to record digitally for each purchase includes:

Date of supply (tax point): Often the invoice date, but could vary depending on tax point rules.

Value of the purchase: The net value (excluding VAT) of the purchase.

VAT amount to reclaim: The VAT on the purchase that you are reclaiming, which can be the full VAT amount or a restricted portion depending on your situation (for example, partial exemption or business/private use adjustments).

VAT rate applied: The VAT treatment of the purchase, captured as a tax code or rate.

Supplier information (where relevant): As with sales, most bookkeeping systems store supplier name and invoice number. While the key requirement is the data underpinning your VAT claims, capturing supplier details strengthens your audit trail.

Evidence of entitlement to reclaim: Separate to the digital record requirement, VAT law requires that you hold valid VAT invoices (or equivalent evidence) for most input tax claims. Under MTD, the “record” is digital data, but you still need to ensure your supporting documents are properly retained, whether as scanned copies, PDFs, or paper originals depending on your processes.

In plain English: for each purchase, your digital system should record when it occurred, the net amount, the VAT rate and VAT amount, and how much input tax you are claiming.

What about petty cash receipts and small purchases?

Small purchases and petty cash can be a sticking point because businesses often treat these casually. Under MTD, the same principle applies: if the purchase affects your VAT return, the relevant data should be captured digitally. If you are collecting receipts in a shoebox and then adding totals manually, you are drifting away from the intent of MTD.

In practice, many businesses use receipt-capture apps that integrate with accounting software. Others enter petty cash transactions directly into their bookkeeping system. The key is that the details needed for VAT calculations are preserved digitally, and the totals used in the VAT return flow digitally into the submission process.

Digital records for the VAT account

In addition to transaction-level details, MTD requires you to keep a VAT account digitally. The VAT account is essentially a summary that shows how you arrived at the figures on your VAT return. It typically includes totals of output tax due, input tax reclaimable, and any adjustments. Many accounting systems generate this automatically, but if you use spreadsheets you may be maintaining it yourself.

Your VAT account should generally include:

Total output tax: The VAT you have charged on sales in the period (subject to the VAT rules applicable to your business).

Total input tax: The VAT you are reclaiming on purchases in the period (subject to restrictions and rules).

Any adjustments: Corrections, bad debt relief claims, partial exemption adjustments, reverse charge entries where appropriate, or other VAT return adjustments that apply to your situation.

Net VAT payable or reclaimable: The difference between output tax and input tax, leading to the amount you pay to HMRC or reclaim.

This summary is important because it links the transactional data to the final VAT return figures. Under MTD, HMRC expects a digital trail from transaction data to VAT return submission.

Digital records for VAT return box totals

The VAT return contains nine boxes. Under MTD, you must submit these box totals via compatible software. You should also ensure your digital records support how those totals were computed.

While you do not necessarily have to store the box totals as separate “records” if your software calculates them on the fly, in practice your accounting system or spreadsheet will contain those totals. They form part of the digital record set because they are the figures that are submitted to HMRC.

If you make manual adjustments to box totals, you need to consider whether your approach still maintains a digital link and an audit trail. For example, if you export totals to Excel, alter them manually, and then type them into another system, you may be breaking the digital link expectation. If you are adjusting figures, it is better to record the adjustment within the digital system in a way that is transparent and traceable.

Digital links: why they matter to what records you keep

MTD record keeping is closely connected to the “digital links” concept. A digital link is an electronic transfer of data between software programs or components, without manual re-entry. HMRC’s aim is to preserve the integrity of the data journey from original transaction to final submission.

Digital links can include importing a CSV file into accounting software, transferring data via an API, or using formulas in a spreadsheet to pull totals from another sheet. What generally undermines compliance is copying and pasting values manually, re-keying totals, or taking figures from one system and typing them into another.

This affects “what records you need to keep digitally” because the records are not just the raw transaction entries; they also include the links and calculations that create your VAT return totals. If you rely on multiple spreadsheets or a mix of spreadsheets and software, the way data moves between them becomes part of your compliance picture.

Do you need to store invoices digitally under MTD?

A common misunderstanding is that MTD requires you to keep every invoice image digitally. MTD focuses on digital records of specified information rather than mandating that every supporting document must be scanned. However, VAT law separately requires you to keep VAT invoices and other evidence to support your VAT position. Many businesses choose to store invoices digitally because it is convenient and aligns with modern workflows, but the key MTD obligation is to keep the required data digitally within functional compatible software.

That said, keeping invoice images or PDFs digitally can reduce the risk of lost paperwork and makes it easier to respond to queries. If you receive e-invoices by email or through supplier portals, you already have digital documents; the main task is ensuring the relevant data is captured into your digital records accurately and consistently.

Retail, margin, and other VAT schemes: extra digital records you may need

If you use a VAT scheme, you may have extra record-keeping obligations beyond the standard transaction list. MTD does not remove those scheme rules; it overlays a digital requirement. The scheme you use can change the structure of the data you need to keep digitally.

Flat Rate Scheme

Under the Flat Rate Scheme, you calculate VAT payable as a percentage of your VAT-inclusive turnover, rather than claiming input VAT in the normal way (with limited exceptions). Digitally, you still need to record your sales (turnover) and apply the correct flat rate percentage. Your digital records should support the VAT-inclusive turnover figure used for the flat rate calculation and any allowed input VAT claims on capital expenditure (where applicable). If your bookkeeping system supports flat rate, it will typically track the relevant totals. If you use spreadsheets, ensure the turnover and calculation are maintained digitally and flow through to submission without manual re-keying.

Cash Accounting Scheme

Under cash accounting, VAT is accounted for based on payments received and made, rather than invoice dates. Digitally, you need records that reflect payment dates and amounts, and the VAT attributable to those payments. This often means your bookkeeping must link invoices to payments accurately. Many accounting platforms handle this naturally through bank reconciliation. If you are doing it manually, it is important that the digital record shows which invoices have been paid and when, because that drives the VAT return figures.

Annual Accounting Scheme

With annual accounting, you submit one VAT return a year, often with interim payments. Digitally, your records still need to support the VAT figures and the final return. Compatible software should be able to maintain the required transaction data and produce the annual return totals digitally.

Margin schemes (for example, second-hand goods)

Margin schemes have specialised requirements, often needing you to record purchase and sale details in a way that identifies the margin and calculates VAT on that margin rather than the full selling price. If you use a margin scheme, your digital records need to capture the data required by the scheme rules (such as purchase price, selling price, and unique identifiers for items) and preserve the calculation trail.

Because margin scheme records are often more detailed than standard VAT records, businesses should ensure their software (or structured spreadsheets) can capture the necessary information at item level. If you operate a high-volume business using such schemes, it is particularly important to have a consistent digital process rather than ad-hoc manual calculations.

Retail schemes

Retail schemes allow certain retailers to calculate VAT using daily gross takings and apportionments rather than issuing VAT invoices for every sale. Digital records here might include daily Z-read totals from tills, category breakdowns, and the calculations used to apportion VAT across different rates. Under MTD, those records and calculations still need to be maintained digitally, and the totals should flow into the VAT return via compatible software.

Partial exemption

If your business is partially exempt, you cannot necessarily reclaim all input VAT. This introduces additional calculations to determine recoverable VAT. Digitally, you should retain the data required to perform partial exemption calculations, such as the split between taxable and exempt supplies and the resulting recovery percentages. You may also need to record annual adjustments.

Practically, many partially exempt businesses use spreadsheets to handle partial exemption calculations. That can still work under MTD for VAT, but you need to ensure the relevant data is kept digitally and that the movement of totals into the VAT return is via digital links rather than manual re-entry. You also need a clear audit trail showing how you arrived at your recoverable input VAT figure.

Reverse charge and international transactions: what you need digitally

International transactions and reverse charge rules can change what you need to record. Under MTD, you still need to capture the information required to calculate VAT correctly, but you may also need additional data fields to classify transactions appropriately.

Domestic reverse charge for certain sectors

For businesses in sectors affected by domestic reverse charge rules, the VAT treatment of sales and purchases changes. Your digital records should clearly identify which transactions fall under reverse charge and ensure that VAT is accounted for in the correct boxes and at the correct rates. Many systems handle this through dedicated tax codes; the important part is that the transaction-level record reflects the correct treatment and the VAT account totals follow correctly.

EU and non-EU sales and purchases

Even after changes to VAT rules in recent years, businesses may still have cross-border supplies, imports, and services that require special handling. Your digital records should distinguish between UK supplies, exports, imports, and services received from abroad that may require reverse charge accounting. The data you keep digitally should be sufficient to support the VAT return entries and any related reporting obligations that apply to your circumstances.

What if you use spreadsheets? Required digital records and practical structure

Spreadsheets are still used widely, especially by small businesses and organisations with bespoke processes. Under MTD for VAT, spreadsheet use can be compatible if you meet the requirements: you must keep the required records digitally, maintain digital links where necessary, and submit your VAT return via compatible software (often bridging software).

If your VAT records are kept in spreadsheets, a practical approach is to structure your workbook so that:

1) Transaction data is in structured tables: Separate tabs for sales and purchases, with consistent columns such as date, net amount, VAT rate/code, VAT amount, and a reference (invoice number or receipt reference). Avoid free-form notes replacing structured fields.

2) Calculations are formula-driven: Use formulas or pivot tables to summarise totals by VAT rate and to compute box totals. The calculation sheets become part of the digital record because they show how the totals were derived.

3) The VAT return box totals are clearly generated: Create a summary tab that outputs the nine box figures. This makes it clear what will be submitted.

4) Submission is connected digitally: Use bridging software that reads the box totals directly from the spreadsheet (or via a digital link) without typing them in manually.

When spreadsheets are used well, they can satisfy MTD, but the discipline of consistent data entry and a clear digital trail is essential. If your spreadsheet relies on someone manually adding up columns and typing figures into another system, you are likely to have compliance risk.

Do you need to keep bank statements digitally under MTD?

MTD does not specifically require bank statements as “MTD records,” but bank transactions are often part of your bookkeeping and evidence trail. If you are using bank feeds in accounting software, the bank transactions will exist digitally in the system anyway. If you use spreadsheets, you might import bank transactions as CSV files and reconcile them against invoices and receipts. While the key MTD obligation focuses on VAT transaction records and the VAT account, strong digital bookkeeping usually includes bank data as part of supporting evidence and reconciliation.

Keeping bank data digitally is also practical because it helps demonstrate completeness of records and can make VAT checks easier. However, you should differentiate between what is explicitly required as MTD digital records and what is good practice for running a compliant finance function.

Corrections and adjustments: what should be recorded digitally?

VAT returns are not always a simple sum of invoices. You might need to make corrections for errors in prior periods, account for bad debt relief, handle fuel scale charges, or reflect accounting adjustments. Under MTD, it is important that these adjustments are recorded digitally and that you can demonstrate how they were calculated and applied.

For example:

Error corrections: If you adjust a return to correct a prior period error (within the relevant correction rules), record the adjustment digitally, including the reason and calculation method. This could be an adjusting journal entry with a clear narrative.

Bad debt relief: Maintain digital records of the original supply, the amount written off, the timing, and the VAT amount reclaimed. Your system should show the link between the bad debt claim and the underlying invoices.

Fuel scale charge: If you apply a fuel scale charge, your digital records should include the calculation basis (such as vehicle CO2 band and the scale charge used) and the resulting VAT adjustment.

Private use and business use adjustments: Where you restrict input VAT for private use, you need digital evidence of the restriction applied and the calculation basis.

The theme is always the same: if an amount affects the VAT return, keep the data and calculation digitally, with an audit trail.

Record retention periods: how long must digital records be kept?

Record retention rules typically require VAT records to be kept for a set period (commonly several years). Under MTD, this means your digital records must remain accessible and readable for the required retention period. If you change software, switch providers, or migrate from spreadsheets to an accounting platform, you should plan for how you will preserve access to the historic records.

This is an often-overlooked practical issue. It is not enough to comply today if you cannot produce the underlying data later. If you move systems, consider exporting data in a usable format and storing it securely, and ensure you can still demonstrate the audit trail from transaction to VAT return for historic periods.

What about businesses that outsource bookkeeping?

If your bookkeeping is handled by an accountant, bookkeeper, or outsourced finance provider, the MTD digital record-keeping obligations still apply to your business. In practice, the outsourced provider will usually maintain the digital records in their chosen software and submit the VAT return through compatible systems. However, you should ensure you understand where the records live, how you can access them, and what happens if you change provider.

It is also important to clarify responsibilities: who captures receipts, who maintains invoice records, and who ensures digital links are preserved. Many compliance problems arise not because the software is wrong, but because the workflow includes manual steps that break the digital trail (for example, a client emailing totals to the bookkeeper, who then types them into another system).

Common misunderstandings about what must be kept digitally

“I can just type the totals into my VAT return like before.” Under MTD for VAT, the submission must be made via compatible software, and the expectation is that totals flow digitally from digital records.

“A scanned PDF is a digital record, so I’m done.” A PDF may be a digital document, but MTD digital record keeping is about the structured data used to calculate VAT. You still need transaction-level data recorded digitally in a system that can generate the VAT figures.

“If my accountant submits, I don’t need to do anything.” Outsourcing helps, but you still need processes that ensure your transactions are recorded properly and that the information is captured digitally and accurately.

“Spreadsheets are banned.” For VAT, spreadsheets can be used if the overall approach meets MTD rules, including digital links and compatible submission methods.

Practical checklist: what you should be able to show digitally

To make this concrete, here is a practical checklist of digital records you should typically have in place if you are following MTD for VAT:

Sales list (digital): A structured record of sales with date, net value, VAT rate/tax code, and VAT amount (plus references such as invoice number).

Purchase list (digital): A structured record of purchases with date, net value, VAT rate/tax code, and VAT amount reclaimed (plus references such as supplier invoice number).

VAT account summary (digital): Totals of output VAT, input VAT, and adjustments that reconcile to the VAT return figures.

VAT return box totals (digital): The nine boxes produced by your software/spreadsheet calculations and submitted via compatible software.

Digital link trail (where multiple tools are used): Evidence that data moves electronically between systems without manual re-keying, including imports, integrations, or formula links.

Adjustment workings (digital): Any calculations for corrections, partial exemption, special scheme computations, or other adjustments stored digitally with a clear audit trail.

How to choose a compliant way to keep records digitally

There is no single “correct” software setup for MTD compliance. The right solution depends on your size, transaction volume, and complexity. However, your approach should aim to minimise manual handling of totals and to keep the transactional data at the heart of your record keeping.

Many small businesses find that adopting mainstream cloud accounting software simplifies compliance because it combines digital records and digital submission in one place. Others prefer spreadsheets because of flexibility, but need bridging software and more disciplined digital linking. Larger businesses may use ERP systems integrated with tax engines and reporting tools. Whatever the setup, the core requirement remains: keep the required records digitally and maintain a digital trail to submission.

Security and accessibility: part of “keeping records” in the real world

Even if you capture the right data digitally, you should also think about security and accessibility. Digital records need to be protected against loss, unauthorised access, and corruption. Cloud software providers typically handle backups and security controls, but you should still use strong passwords, multi-factor authentication where available, and sensible access permissions.

If you use spreadsheets stored locally, consider version control, backups, and who has access. A spreadsheet that lives on a single laptop with no backups is a risk, not just for compliance but for business continuity.

Accessibility is also important. If HMRC asks questions, you need to be able to retrieve your digital records and explain them. A well-organised digital system, with clear references and consistent coding, makes that much easier.

What to do if your current process is partly digital and partly manual

Many businesses are in a hybrid state: they have some digital systems, but still rely on manual steps. For example, you may raise invoices in software but track purchases in a spreadsheet, or you may reconcile bank transactions in an app but calculate VAT adjustments offline. The good news is that compliance often does not require a total overhaul; it requires identifying the points where manual re-entry occurs and replacing those steps with digital links or consolidated workflows.

A sensible approach is to map your VAT process from start to finish:

1) How do sales get recorded? Invoicing software, EPOS, e-commerce platforms, or manual invoices.

2) How do purchases get recorded? Bills, expense apps, bank feeds, or manual spreadsheets.

3) Where are VAT totals calculated? Accounting software report, spreadsheet summary, or manual calculation.

4) How is the VAT return submitted? Directly from software, or via bridging software.

Then focus on making each step digital-to-digital rather than paper-to-digital-to-manual-to-digital. Often the biggest improvement comes from ensuring that the VAT return box totals are pulled directly from the system that holds the digital records, rather than being typed in.

Summary: the records that need to be kept digitally under MTD rules

Under MTD rules, the records you need to keep digitally are the ones that underpin your tax reporting, especially the transactional data and summary calculations that produce the figures you submit. For MTD for VAT, that generally means keeping digital records of sales and purchases (including dates, values, VAT rates, and VAT amounts), maintaining a digital VAT account that shows how you arrived at your return figures, and ensuring the VAT return box totals are generated and submitted through compatible software with a digital trail.

Beyond the minimum, many businesses improve compliance and efficiency by storing supporting documents digitally, using receipt-capture tools, maintaining strong audit trails for adjustments, and ensuring data moves between tools via digital links. The goal is not simply to “go paperless,” but to keep reliable structured data digitally, reduce avoidable errors, and make VAT reporting a consistent, repeatable process.

If you keep the guiding principle in mind—transaction data captured digitally, calculations performed digitally, and submission made digitally—you will be well positioned to meet MTD requirements and to adapt as the MTD programme expands to other taxes over time.