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You need to get software that works with Making Tax Digital for Income Tax.Ìý

You can choose to use either:

• a single software product that meets all your needs
• more than one software product, that when used together will meet all your needsÌý

There are 2 main types of compatible software:

• software that creates digital records and can make submissions to HMRCÌý
• bridging software that connects to your current record-keeping software (such as a spreadsheet) and can also make submissions to HMRCÌý

If you have an agent, you should discuss your software options with them as they may already be using compatible software.

If you use bridging softwareÌý

You need to digitally link the records in your record-keeping software to your bridging software. You may need to do this when you set up the bridging software or before you:Ìý

• send your quarterly updates to HMRCÌý
• submit your tax returnÌý

Once you’ve created a digital record and it has been sent to HMRC in a quarterly update, you must not manually move the record within your record-keeping software or to other software. For example, you must not:Ìý

• copy information by writing it out in another cell or in other softwareÌý
• use ‘cut and pasteâ€� or ‘copy and pasteâ€� to move records

How to digitally link your softwareÌý

You can digitally link your records in various ways, including:Ìý

• using linked cells in spreadsheets â€� for example, if you have a formula in one sheet that mirrors the source’s value in another cell and the cells are linkedÌý
• emailing a spreadsheet containing digital records, so the information can be imported into another software productÌý
• transferring a set of digital records onto a portable device (for example, a pen drive, memory stick or flash drive) and physically giving this to someone who imports the data into their softwareÌý
• XML, CSV importing and exporting, and downloading and uploading filesÌý
• using an automated data transferÌý
• using an application programming interface (API) transfer

You do not need to digitally link:Ìý

• records of income that are not self-employment or property income and expenses â€� for example, income from dividends or savingsÌý
• software that’s not used to create digital records of self-employment and property income and expenses â€� for example, software that takes bookingsÌý

If you are a landlord that jointly lets a property, you do not need to link your digital records to the records of the other landlord.

You only need to create and store digital records of your self-employment and property income and expenses, such as:Ìý

• self-employment income â€� including sales, takings and feesÌý
• self-employment expenses â€� including the cost of stock, travel costs, office costs and financial costsÌý
• property income â€� including rent, premiums for the grant of a lease, reverse premiums and inducementsÌý
• property expenses â€� including rent, costs of repairs, maintenance or other services

When you create records of your income or expenses, you will need to record the:Ìý

• ²¹³¾´Ç³Ü²Ô³ÙÌý
• date when the income was received or expenses incurredÌý
• category â€� depending on your record-keeping requirementsÌý

Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment.

If you have more than one business

For each source of self-employment income you have, you will need to:Ìý

• create separate digital recordsÌý
• send separate quarterly updatesÌý

For example, if you are an electrician as well as a driving instructor, you should create one set of digital records for each of your businesses.Ìý

You should create separate digital records for your UK and foreign property businesses, if you’re UK tax resident.

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• UK properties are treated as one ‘UK property businessâ€�
• non-UK properties are treated as one ‘foreign property businessâ€�

Your share of any jointly let properties will form part of either your UK or foreign property business.

There are some records you do not need to keep digitally but can choose to do so. This can help you maintain a more up-to-date view of your tax affairs.Ìý

Other income sources

You do not need to create digital records for all other sources of income reported through Self Assessment, such as income from employment (PAYE), a partnership or dividends (including those from your own company).Ìý

If your compatible software has the functionality, you can choose to report these income sources during the tax year, through your software.

Disallowable expenses

These are expenses that are not wholly for business use, so a portion of them cannot be claimed on your tax return.Ìý

If you currently keep a record of the disallowable portion of your expenses, then you should continue to do this by creating digital records of these amounts in your software.

For example, you have a mobile phone bill which totals £200. The bill is made up of:Ìý

• £125 for business callsÌý
• £75 for personal calls (which is the disallowable portion of the expense)

If you choose to create a record of the disallowable portion, you will create a digital record of:

• the full £200 expense
• the £75 disallowable portion

Simplified expensesÌý

If you’re sure you’ll use a simplified expenses scheme, you do not need to create digital records of your actual expenses.Ìý

If you’re not sure, you should create digital records of all expenses.Ìý

Find out more about�simplified expenses.

Transactions that are part capital and part revenueÌý

If you have a transaction which is part capital and part revenue, you can either:Ìý

• record the full value of a transaction (including capital elements) â€� you should then make an adjustment before finalising your Income Tax positionÌý
• create a digital record of just the revenue ²¹³¾´Ç³Ü²Ô³ÙÌý

For example, if you make a mortgage payment, you will need to create a digital record of either the interest or the full amount. If you create a record of the full amount, you will need to make an adjustment before you finalise your Income Tax position.

You can choose to create and categorise your digital records in a particular way if:Ìý

• you jointly let property with another landlordÌý
• your turnover is below the VAT thresholdÌý
• you are a retailerÌý

You can read more information on VAT thresholds.Ìý

You can also read more about what your digital records must include and how to create and store your records in the Digital record-keeping notice for Making Tax Digital for Income Tax.

If you are a landlord that jointly lets propertiesÌý

You only need to create digital records that relate to your share of income and expenses from your jointly let properties.Ìý

To simplify your record keeping, you can choose to:Ìý

• create less detailed digital records for the income and expenses from your jointly let propertiesÌý
• not include expenses which relate to jointly let properties in your quarterly updates â€� you will need to include this information when you finalise your Income Tax position after the end of the tax year and before you submit your tax return

For jointly let properties only, creating less detailed digital records means:Ìý

• creating a single digital record for each category of property income that you receive in an update periodÌý
• creating a single digital record for each category of property expense that you incur in a tax yearÌý

For example, a landlord with a jointly let property, could either:Ìý

• create 3 digital records, showing £1,000 of rent they received each monthÌý
• just create one digital record for the quarter, showing £3,000 of rent received

Simpler categorisation if your turnover is below the VAT thresholdÌý

You can choose to categorise your digital records in less detail if you have either of the following:Ìý

• total UK property income of less than £90,000 before expenses (this also applies if you are a landlord that jointly lets a property)Ìý
• total income from self-employment of less than £90,000 before expenses

If you have more than one income source, you can only use simpler categorisation for both income sources if your turnover is below the VAT threshold for each income source.Ìý

If you’re a sole trader, you only need to record whether a transaction is income or an expense.Ìý

If you’re a landlord and receive rental income from residential property, you need to categorise your expenses in more detail even if your turnover is below the threshold. You must:Ìý

1. Record if a transaction is an income or an expense.Ìý

2. If it is an expense, record whether the expense is for residential finance costs.

If your turnover later goes above the VAT thresholdÌý

If your turnover goes above £90,000, you will need to categorise all digital records for that income source in full, including those:

• from the beginning of the current tax year
• in the following tax year

If you do not categorise your records for that income source in full, you’ll not be able to submit your tax return.Ìý

If you’re unsure if your turnover will go above £90,000, you should categorise your digital records in full detail.Ìý

If you’re a retailerÌý

You can choose to create a digital record of your daily gross takings, instead of individual sales that you make.

Read more about creating digital records of retail sales.

There are some decisions you should consider making at the beginning of the tax year, even though you might currently make them after the tax year has ended.Ìý

Consider your accounting periodÌý

Your software will default to an accounting period that aligns with the tax year (6 April to 5 April).Ìý

If you have an accounting period that ends on the 31 March each year, you should make sure you have chosen calendar update periods in your software. This will make your record-keeping simpler.

Consider which accounting method to useÌý

You may want to consider which accounting method you’ll use for your record-keeping. This will either be:Ìý

• cash basis accountingÌý
• traditional accountingÌý

Choose how to categorise your recordsÌý

You may want to use simpler categorisation for your digital records if you are eligible.Ìý

Choose whether to use simplifications for your jointly let properties

You may want to create less detailed records or not include expenses in your quarterly updates. These simplifications can only be used for properties that you jointly let with another landlord.

You will need to create digital records for a quarterly period before either:Ìý

• the quarterly update deadline for that periodÌý
• sending that quarterly update, if this is before the deadlineÌý

For example, you will need to create a digital record of income you receive on 30 April before (all of the following):Ìý

• you send your first quarterly updateÌý
• 5 August â€� the deadline for that update

You should create digital records as close to the date of the transaction as possible. This will help you have a more up to date view of your business affairs.Ìý

During the testing phase, if you sign up partway through the tax year, you do not need to catch up with your digital record-keeping straight away, as late submission penalties for quarterly updates do not apply. You can read more about catching up in If your circumstances change.

If you are a landlord that jointly lets propertiesÌý

If you have chosen not to include expenses which relate to jointly let properties in your quarterly updates, then you do not need to create digital records for those expenses every quarter.Ìý

You will need to create digital records for these expenses before you finalise your Income Tax position. You will then need to resend your fourth quarterly update to include these records before you submit your tax return.

If you only get told about your net incomeÌý

If you only get told what your income is after expenses are deducted (net income) you need to do the following.

1. Ask what the full amount of income was before expenses were deducted.

2. Create a digital record for the full amount of income.

3. Create a digital record for your expenses.Ìý
   

If a trust or partnership tell you about your self-employment or property income

If a trust or partnership tells you about your self-employment or property income after the quarterly update deadline, you can either:Ìý

• estimate your income or expense and then confirm it later
• record the income or expense once you are notified of it

If you estimate your income or expenseÌý

You should:Ìý

1. Create a digital record for the transaction.

2. Update the digital record when the income or expense is confirmed.Ìý

It will then be included in your next quarterly update.Ìý

If you have already sent your fourth quarterly update, you will need to resend the update to include the confirmed income or expense.

If you record the income or expense once it’s confirmedÌý

You should:Ìý

1. Send nil returns during the tax year if you have no other business income.

2. Create a digital record for the income or expense when you are notified of it.

It will then be included in your next quarterly update.Ìý

If you have already sent your fourth quarterly update, you will need to resend the update to include the confirmed income or expense.

You will need to have finalised your digital records before you submit your tax return.

You may need to correct a digital record, if you:

• made a mistake when creating a digital record
• forgot to record income you received, or expenses you incurred

To correct your records, you may need to change, delete or create a digital record. If you make the correction during the tax year, it will be included when you submit your next quarterly update.Ìý

If you have an agent that deals with your record-keeping, they can do this on your behalf.Ìý

If you use software that lets you create digital records, you can make the correction in your software.Ìý

If you create digital records in separate record-keeping software (for example, a spreadsheet), you should make the correction there and then digitally link your records to your bridging software.

If you have already sent your fourth quarterly update, you can choose to make the correction by either:Ìý

• correcting the digital record and resending your fourth quarterly update (this may be easier if you are a sole trader or landlord that keeps their own digital records)Ìý
• adjusting the category total in your compatible software and also reflecting it in your digital records (if you have an agent, they may make the correction in this way and ask you to update your records)

When to correct digital records

If you discover an error or omission in your digital records, you should correct it as soon as possible.

After making the correction, it will be included when you submit your next quarterly update.Ìý

If you have already sent your fourth quarterly update, you will need to make any corrections before you finalise your Income Tax position.

You will need to keep your digital records for at least 5 years after the 31 January submission deadline for a tax year. This is the same amount of time you need to keep records for Self Assessment.

You still need to store your digital records for the correct length of time if you change your software.Ìý

You should also make sure you can access your digital records from previous tax years. For example, you may need to export your digital records from your old software and store them securely.Ìý

If you change your agent, you need to request and store your digital records from previous tax years.

If you change your software during a tax yearÌý

If you use compatible software to create digital records, you will need to either:Ìý

• import your digital records into your new compatible software for the current tax yearÌý
• recreate the records in your new softwareÌý

If you use bridging software, you will need to link the new bridging software to your record-keeping software.

If you change your software after the end of a tax yearÌý

You do not need to import your digital records from previous tax years into the new software.Ìý

You should still store your digital records from previous tax years securely and be able to access them.Ìý

When you have chosen how you will create and store your digital records, you should check when you need to send updates to HMRC.