Digital Record Keeping
Keep compliant digital records under Making Tax Digital with proper digital links and an unbroken data trail.
Digital record keeping is no longer optional for many UK businesses. Under Making Tax Digital (MTD), HMRC expects certain records to be created, stored and submitted electronically, with an unbroken digital link running from your source data all the way to the figures you file. Get this right and your books become faster, cleaner and audit-ready; get it wrong and you risk penalties, rejected returns and a frantic year-end scramble.
This guide explains what actually counts as a digital record, the requirements MTD imposes, how digital links work, and the everyday habits that keep your data compliant. It sits alongside our wider e-invoicing and digital compliance hub and the practical detail on keeping a VAT audit trail .
What counts as a digital record
A digital record is information about a transaction held in an electronic form that software can read, store and transmit. It is not simply a scanned image filed in a folder, nor a figure typed into a spreadsheet by hand from a paper note. To qualify, the data must live in functional compatible software that can both keep the record and exchange it with HMRC.
For each transaction, a compliant digital record typically captures:
- The date of the supply or purchase
- The net value and the VAT charged (where relevant)
- The rate of VAT applied
- Enough detail to identify the entry within your wider records
Crucially, the record must originate digitally and stay digital. Once a figure is captured electronically, re-typing it elsewhere breaks the chain and undermines the whole point of the system.
MTD digital record requirements
Making Tax Digital currently applies to VAT-registered businesses and is being extended to Income Tax for the self-employed and landlords above the applicable income threshold. Wherever it applies, the core obligations are the same: keep your records digitally, and file using compatible software rather than typing figures into an HMRC portal.
Under MTD you must keep, in digital form:
- Your business name and principal place of business
- Your VAT registration number and any schemes you use
- A digital record of each sale and purchase
- The VAT account that links your records to your return
For VAT specifically, the VAT account is the bridge between your transaction records and the boxes on your return. It must be maintained digitally and recalculated by software, not by hand. For a step-by-step walkthrough, see our Making Tax Digital and software hub and the MTD for VAT checklist .
Digital links explained
A digital link is an electronic transfer of data between two pieces of software with no manual intervention. The moment a number is copied and pasted, or re-keyed by a person, the link is broken and the chain is no longer compliant.
Acceptable digital links include:
- Software importing a bank feed automatically
- An API connection between your accounting and till systems
- Linked cells or formulas referencing another spreadsheet
- Exporting a file and importing it into the next program
The principle is sometimes called the “unbroken digital journey”: data should flow from its original entry point through every system and into your return without anyone retyping it. If you use a spreadsheet alongside dedicated software, the two must be joined by a formula or a file transfer, never by reading a total off one screen and typing it into another.
Avoiding manual re-keying
Manual re-keying is the single most common way businesses fall foul of MTD. It is slow, error-prone and explicitly non-compliant where a digital link is required. The fix is to let software do the moving.
| Task | Manual approach (risky) | Digital approach (compliant) |
|---|---|---|
| Recording sales | Typing each invoice total into a spreadsheet | Invoices recorded directly in software |
| Importing bank data | Copying figures from a statement PDF | Connected bank feed imports transactions |
| Combining systems | Reading a total and retyping it | API or linked-file transfer between systems |
| Filing the return | Keying box figures into the HMRC portal | Software submits directly via the digital link |
Beyond compliance, removing re-keying eliminates transposition errors, saves hours each quarter and keeps your books continuously up to date. Our guide to automating your bookkeeping shows how to set this up end to end.
Storing source documents
Digital records summarise your transactions, but you must still be able to produce the source documents behind them: invoices, receipts, contracts and statements. HMRC accepts scanned and photographed copies as valid evidence, provided the image is legible and all the information is preserved, so you can usually discard the original paper once captured.
Best practice is to attach each source document to its transaction so there is a clear path from a figure in your accounts to the evidence that supports it. This mirrors good record keeping for expenses and makes any HMRC enquiry far easier to answer. A loose folder of images that nobody has matched to the books is worth little when questions arise.
Retention periods
Going digital does not change how long you must keep records, only the form they take. Treat the periods below as a baseline, and hold records longer if a return is late, under enquiry or amended.
| Business type | Keep records for | Counted from |
|---|---|---|
| Sole trader / partnership | At least 5 years | The 31 January submission deadline |
| Limited company | At least 6 years | The end of the financial year |
| VAT-registered (any type) | At least 6 years | The date of the transaction |
Limited companies must retain records to support both their Corporation Tax computation and the statutory accounts filed under UK GAAP, typically FRS 105 for a micro-entity. For more on retention obligations across the business, see our overview of data retention for businesses .
Backups and security
A digital record you cannot retrieve is no record at all. Reputable cloud accounting software handles backups for you, replicating data across resilient infrastructure, but you remain responsible for access and security.
Sensible safeguards include:
- Strong, unique passwords and multi-factor authentication
- Limiting user access to what each role genuinely needs
- Confirming your provider’s backup and recovery arrangements
- Keeping an independent export of key data periodically
Because your records contain personal and financial data, you must also handle them in line with UK GDPR, storing only what you need and protecting it appropriately.
Common compliance gaps
Even well-run businesses slip up in predictable ways. Watch for these recurring gaps:
- Copy-and-paste between systems, which breaks the digital link
- Typing return figures straight into the HMRC portal
- Spreadsheets joined to software by hand rather than by formula
- Source documents captured but never matched to transactions
- Records that are digital in name only, re-keyed from paper
Most of these stem from a half-migrated process, where part of the workflow is automated and part is still manual. Closing the gaps means committing to a genuinely unbroken digital journey from first entry to final submission. Choosing the right tools is the foundation; our guide to choosing accounting software helps you pick a system that keeps every link intact.