Quick answer:
Under MTD you must keep digital records of your business income and expenses in compatible software, captured close to when they happen. The software stores each transaction digitally and uses those records to build your quarterly updates and final declaration.
What “digital records” means in practice
It doesn’t mean scanning a shoebox of receipts in January. It means each transaction is recorded digitally in MTD-compatible software ,ideally as it happens ,with enough detail to categorise it correctly. Open banking makes this almost automatic, because transactions arrive in the software directly from your bank. HMRC sets out what digital records must contain in its MTD for Income Tax guidance.
What you need to record
- The amount of each item of income and expense.
- The date and category of each transaction.
- Enough supporting detail to back up your figures if HMRC asks.
What good record-keeping looks like
- Transactions imported automatically rather than typed in.
- Categories applied consistently (and reviewed, not guessed).
- Receipts attached digitally where relevant.
- Records kept current, so quarterly updates are quick.
Common mistakes to avoid
- Mixing personal and business spending in one account.
- Leaving categorisation until quarter-end.
- Relying on a basic spreadsheet that can’t file to HMRC.
How CleanBooksAI keeps records clean automatically
CleanBooksAI imports transactions through open banking, categorises them with the Keeva assistant, and stores supporting documents alongside them ,so your digital records meet the rules without you doing the manual work. The easiest route off spreadsheets is to move to MTD software. Clean records make quarterly updates a quick review rather than a scramble.
