Digital Record Keeping for Making Tax Digital – HMRC Compliance Made Simple

The Foundation of Making Tax Digital Compliance

When businesses hear about Making Tax Digital, they often focus on submissions — VAT returns, quarterly updates, tax filings.

But the real foundation of MTD compliance sits much deeper.

It begins with how your financial records are created, stored, and maintained.

HMRC doesn’t just require digital submissions.

They require digital record keeping.

If your records aren’t compliant, your submissions — even if filed on time — may still fail compliance reviews.

If you’ve been searching:

• Digital record keeping HMRC
  • MTD bookkeeping requirements
  • VAT digital records UK

You’re likely trying to understand what counts as a compliant digital record — and how detailed your bookkeeping must be.

This guide explains the rules clearly and shows how we help businesses build fully compliant digital record systems.

What Digital Record Keeping Actually Means

Digital record keeping means maintaining your financial records in electronic format within HMRC-recognised systems.

This includes all income, expenses, and VAT-related data used to prepare tax submissions.

Under MTD, businesses must store records digitally rather than relying on paper or manual logs.

Digital records typically include:

• Sales transactions
  • Purchase records
  • Expense documentation
  • VAT charged
  • VAT reclaimed
  • Supplier details
  • Customer invoices

These records must exist in structured digital systems capable of producing accurate submissions.

Why HMRC Requires Digital Bookkeeping

HMRC introduced digital record keeping to reduce reporting errors and improve transparency.

Manual bookkeeping often leads to:

• Missing transactions
  • Incorrect VAT calculations
  • Lost receipts
  • Spreadsheet formula errors

Digital systems automate calculations, store audit trails, and ensure submissions reflect actual financial activity.

The shift isn’t just about technology — it’s about improving reporting accuracy across the tax system.

MTD Bookkeeping Requirements — What Must Be Recorded

To remain compliant, businesses must digitally record specific financial data points.

These include:

• Date of each transaction
  • Transaction value
  • VAT rate applied
  • Supplier or customer name
  • Invoice references
  • Payment records

For VAT-registered businesses, the detail level is even more important — as submissions rely directly on these records.

Incomplete data can lead to inaccurate returns.

VAT Digital Records — What HMRC Expects

For businesses registered for VAT, digital record keeping requirements are stricter.

HMRC expects businesses to digitally maintain:

• VAT account summaries
  • Output VAT charged
  • Input VAT reclaimed
  • Adjustments and corrections
  • VAT scheme calculations

These records must feed directly into VAT return submissions through compliant software.

This ensures VAT reporting reflects real-time financial activity.

Digital Links — Connecting Financial Data

One of the most important — and often misunderstood — aspects of MTD bookkeeping is digital links.

A digital link is an electronic transfer of financial data between systems without manual intervention.

Examples include:

• Accounting software importing bank transactions automatically
  • POS systems feeding sales data into bookkeeping platforms
  • Expense apps syncing costs into accounts

Manual copying and pasting between systems can break digital link compliance.

HMRC requires financial data to flow electronically from source to submission.

Why Digital Links Matter

Digital links ensure data integrity.

They prevent:

• Manual transcription errors
  • Data duplication
  • Reporting inconsistencies

They also create clear audit trails — allowing HMRC to trace figures from submitted returns back to original records.

This transparency is a core principle of Making Tax Digital.

Acceptable Digital Link Methods

Digital links can exist in several forms, including:

• API integrations between systems
  • Automated data imports
  • Bridging software connections
  • Linked spreadsheet formulas

The key requirement is that data flows electronically — without manual re-entry.

Storage Compliance — Keeping Records Securely

Digital record keeping isn’t just about data creation — it’s also about storage.

HMRC requires records to be stored securely and remain accessible for compliance review.

Storage requirements include:

• Secure digital environments
  • Backup protections
  • Audit trail preservation
  • Document retention policies

Businesses must retain digital records for defined compliance periods.

Cloud Storage vs Local Storage

Many businesses now store records in cloud environments — often as part of accounting software platforms.

Cloud storage offers:

• Automated backups
  • Remote access
  • Security encryption
  • Disaster recovery protection

Local storage can still be compliant — but must meet security and accessibility standards.

Supporting Documentation — Digital Evidence

In addition to transactional records, businesses must store supporting documentation digitally.

This may include:

• Receipts
  • Supplier invoices
  • Contracts
  • Expense proofs
  • Bank statements

These documents substantiate reported figures and may be requested during HMRC reviews.

Building a Compliant Digital Record Keeping System

Moving into digital record keeping isn’t just about buying accounting software — it’s about building a structured system that captures, stores, and reports financial data accurately.

A compliant system must allow you to record transactions as they happen — not retrospectively at year end.

This means implementing processes that ensure income and expenses are logged consistently throughout the year.

A fully compliant record keeping framework typically includes:

• Accounting software for financial records
  • Bank feed integrations
  • Expense capture tools
  • Invoice generation systems
  • Digital document storage

When these components work together, your bookkeeping becomes submission-ready at all times.

Setting Up Digital Bookkeeping Workflows

For many businesses, the biggest change under MTD isn’t technology — it’s workflow.

Instead of collecting receipts once per year, businesses must adopt continuous bookkeeping processes.

This includes:

• Recording sales invoices as issued
  • Logging expenses when incurred
  • Uploading receipts immediately
  • Reconciling bank transactions regularly

Consistent workflows reduce reporting pressure near submission deadlines and improve financial accuracy.

Maintaining Audit Trails

One of HMRC’s key expectations under digital record keeping is the presence of audit trails.

An audit trail allows financial data to be traced from submission back to original transaction records.

This includes:

• Invoice references
  • Payment confirmations
  • Expense documentation
  • Adjustment logs

Audit trails provide transparency and ensure submissions are fully substantiated.

Record Retention Requirements

HMRC requires businesses to retain financial records for specific periods — even in digital format.

While retention timelines may vary depending on tax type, businesses should generally maintain records for multiple years.

Digital storage ensures records remain:

• Accessible
  • Searchable
  • Secure
  • Backed up

Deleting records prematurely may create compliance exposure during HMRC reviews.

Risks of Poor Digital Record Keeping

Failing to maintain compliant digital records can create reporting and compliance issues — even if submissions are filed on time.

Common risks include:

• Inaccurate VAT returns
  • Missing expense claims
  • Underreported income
  • Submission discrepancies
  • HMRC compliance enquiries

Because MTD submissions rely on digital data, poor record keeping directly affects reporting accuracy.

Penalties for Non-Compliance

Once MTD obligations apply, failing to maintain digital records can result in enforcement action.

Potential consequences include:

• Financial penalties
  • Submission rejections
  • Late filing fines
  • Compliance monitoring
  • Increased audit risk

Even if tax liabilities are paid correctly, non-compliant record keeping may still trigger penalties.

Preparing compliant systems early protects against these risks.

How We Help Businesses Implement Digital Record Keeping

Our role is to make digital bookkeeping structured and stress-free — regardless of business size or complexity.

We provide full implementation support, including:

• Record keeping compliance assessments
  • Software selection guidance
  • Bookkeeping system setup
  • Digital link structuring
  • Expense capture workflows
  • Document storage solutions
  • Staff training

Whether you’re transitioning from paper records or upgrading existing systems, we ensure your record keeping meets HMRC MTD requirements.

Ongoing Record Keeping Support

Many clients choose ongoing support after implementation to ensure records remain compliant.

This may include:

• Bookkeeping reviews
  • Transaction categorisation checks
  • VAT coding audits
  • Submission readiness monitoring

Ongoing oversight ensures digital records remain accurate year-round.

Turning Record Keeping Into Financial Visibility

Once digital systems are embedded, businesses often discover operational advantages beyond compliance.

These include:

• Real-time profit tracking
  • Expense visibility
  • Cash flow monitoring
  • Faster reporting cycles
  • Improved financial decision-making

Digital record keeping becomes a management tool — not just a tax requirement.

Frequently Asked Questions — Digital Record Keeping

What is digital record keeping under MTD?
It means maintaining financial records electronically within compliant software systems.

Do I need accounting software?
Yes — or a digitally linked equivalent system.

Can I still keep paper receipts?
Yes — but digital copies must also be stored.

What are digital links?
Electronic data transfers between systems without manual re-entry.

How long must records be stored?
For HMRC retention periods, typically several years.

Do landlords and sole traders need digital records?
Yes — if they fall within MTD reporting thresholds.

Can you set up record keeping systems for me?
Yes — we provide full implementation support.

Ready to Get Your Records MTD-Compliant?

If your financial records still sit in spreadsheets, paper files, or disconnected systems, now is the time to transition into compliant digital bookkeeping.

Audit Consulting Group will:

• Assess your current records
  • Implement compliant software
  • Structure digital links
  • Set up document storage
  • Train your team
  • Ensure submission-ready records

You gain compliance confidence — and clearer financial visibility.

Speak with our team today and get your digital record keeping structured professionally.