What Are Digital Links? MTD Record Keeping Requirements Explained
Last updated: February 2026
Making Tax Digital for Income Tax requires you to keep digital records of your business and property income. But what exactly counts as a digital record? And what is a digital link? These terms appear throughout HMRC’s guidance, and misunderstanding them could mean your records fail an HMRC compliance check even if the numbers themselves are correct. This article explains what HMRC expects, what qualifies as a digital link, and how to set things up before the April 2026 deadline.
What digital records HMRC requires
Under MTD for Income Tax, you must keep a digital record of every transaction relating to your self-employment or UK property income. For each transaction, HMRC requires three pieces of information as a minimum: the date of the transaction, the amount, and the category of income or expense it falls under.
Categories follow the headings on the Self Assessment tax return. For a sole trader, that means separating turnover from allowable expenses such as premises costs, travel, advertising, and so on. For a landlord, it means recording rental income separately from expenses like insurance, repairs, agent fees, and mortgage interest. You do not need to record every transaction to the penny in real time, but your digital records must be maintained and updated at least quarterly, ready for each quarterly update submission.
The records must be held digitally. A paper cashbook that you type up once a year does not meet the requirements. However, you can keep paper receipts and invoices alongside your digital records. HMRC does not require you to scan, photograph, or digitise your paper source documents. This is one of the most common misconceptions about MTD. Your paper records can continue to exist as normal. What matters is that the summary transaction data (date, amount, category) lives in a digital system.
What a digital link actually means
A digital link is a transfer of data between software programs, products, or applications where the data flows electronically without any manual re-entry. The concept applies whenever data moves from one place to another in your record-keeping chain. If you record a transaction in a spreadsheet and that spreadsheet connects to bridging software which submits your figures to HMRC, the connection between your spreadsheet and the bridging software must be a digital link.
HMRC’s MTD overview guidance defines a digital link as any electronic transfer where data does not have to be manually retyped. The purpose is to reduce transcription errors. When someone reads a figure from one screen and types it into another, mistakes happen. Digital links remove that risk.
What counts as a digital link
The definition is broader than many people assume. All of the following qualify:
- API connections between software products (for example, your accounting software connecting to HMRC’s systems to submit quarterly updates)
- CSV or XML file imports where you export data from one application and import it into another
- Copy and paste of data between connected software applications or between cells in a spreadsheet
- Linked cells in a spreadsheet, where a formula in one sheet pulls data from another
- Automated bank feeds that pull transaction data directly from your bank into your accounting software or spreadsheet
- Email attachments containing digital data that is imported (not retyped) into your records
The common thread is that data moves electronically. It does not matter whether the method is sophisticated. A simple copy-paste between two Excel workbooks counts just as much as a real-time API integration.
What does NOT count as a digital link
Two scenarios fall outside the definition. The first is reading a figure from a paper document and typing it into software. If you receive a paper bank statement, look at the total, and type that number into a spreadsheet, there is no digital link between the bank statement and your spreadsheet. The second is reading a figure from one screen and manually typing it into a different application. If you look at your online banking, note a payment of £450, then open your spreadsheet and type 450, that is manual transcription, not a digital link.
The distinction matters because HMRC requires an unbroken digital link chain from your source records through to the figures in your quarterly submission. One break in the chain, one instance of manual retyping, and the requirement is technically not met.
In practice, HMRC has indicated a pragmatic approach. The soft-landing period for the first year (2026/27) means penalties for record-keeping failures are unlikely for those making a genuine effort. But the requirement exists, and getting it right from the start avoids problems later.
You do not need to scan receipts
This point deserves its own section because it comes up so frequently. HMRC does not require you to scan receipts, photograph invoices, or store digital images of paper documents. Your obligations relate to the transaction data, not the source documents.
If you buy printer ink for £24.99 and pay by card, the card transaction appearing in your bank feed satisfies the digital record requirement once it is categorised in your software. You should still keep the paper receipt for your own records (HMRC can ask to see evidence of a claimed expense), but you do not need to digitise it. Receipt-scanning apps like Dext and AutoEntry are convenient tools, but they are optional, not mandatory.
Spreadsheets are valid digital records
You do not need to buy accounting software to comply with MTD. A spreadsheet, whether Excel, Google Sheets, or LibreOffice Calc, counts as a digital record provided it meets the content requirements (date, amount, category for each transaction) and connects to HMRC-recognised compatible software via a digital link for submission.
Bridging software provides this connection. Products like VitalTax and 123 Sheets work as add-ins or companion tools that read your spreadsheet data and transmit it to HMRC. The link from your spreadsheet to the bridging tool is digital (the software reads the cell values directly), so the digital link requirement is satisfied. You keep your spreadsheet as your primary record, and the bridging tool handles submission only.
If you use multiple spreadsheets, the links between them must also be digital. For example, if you have one spreadsheet for rental income and another that consolidates your totals, the consolidation sheet should pull figures using formulas or linked references rather than having numbers typed in manually.
How bank feeds create digital records automatically
Bank feeds are the simplest way to meet MTD record-keeping requirements. When your accounting software or spreadsheet connects directly to your bank, transactions are imported automatically. Each transaction arrives with a date and amount already populated. You only need to assign the correct category.
Most major UK banks support Open Banking connections. Xero, FreeAgent, QuickBooks, and Sage all offer automatic bank feeds as standard. For spreadsheet users, some bridging tools and third-party services can import bank data into a spreadsheet format, though this is less common.
Bank feeds also solve the digital link question neatly. The data flows electronically from your bank to your software. No manual typing is involved. From there, the software submits to HMRC via API. The entire chain from source to submission is digitally linked.
Three-line accounts for simpler record-keeping
If your annual turnover is below the VAT registration threshold of £90,000, you can use three-line accounts for your quarterly updates. This means you only need to report three figures: total income, total allowable expenses, and net profit. You do not need to break expenses down into individual categories.
This significantly reduces the record-keeping burden. You still need to keep digital records of each transaction with a date, amount, and some form of categorisation. But your quarterly submission to HMRC can be a simple three-line summary rather than a detailed breakdown. For a sole trader with straightforward expenses, or a landlord with a handful of regular transactions, this makes the process much more manageable.
Penalties for inadequate records
Record-keeping failures are treated separately from late filing penalties under MTD. If HMRC opens an enquiry and finds that your digital records are inadequate, incomplete, or inaccurate, they can charge a penalty of up to £3,000. This is not new; the same penalty exists under Self Assessment. What changes under MTD is that your records must be digital and digitally linked, giving HMRC a clearer standard against which to measure compliance.
In practice, penalties for record-keeping tend to arise during enquiries triggered by other issues, such as an inconsistency in your return or a random compliance check. Keeping clean, categorised, digitally linked records is the best protection if that happens.
Worked example: a landlord’s letting agent statement
Sarah owns two flats in Manchester and uses a letting agent to manage them. Each month, the agent sends her a PDF statement showing rent collected (£1,200 per flat), their management fee (10%, so £240), and the net payment to Sarah (£2,160).
Under MTD, Sarah needs to record the gross rental income (£2,400) and the agent’s fee (£240) as separate transactions each month. She uses a spreadsheet with columns for date, description, category, and amount. She types the figures from the agent’s PDF statement into her spreadsheet. Strictly speaking, this is manual entry from a digital document, which does not constitute a digital link between the agent’s PDF and her spreadsheet.
To create a proper digital link, Sarah could ask her agent to send the statement as a CSV file and import it into her spreadsheet. Alternatively, if the agent’s fees are deducted from her bank account, the bank feed into her accounting software captures the transaction digitally. Either approach satisfies the digital link requirement.
Sarah’s spreadsheet connects to VitalTax, which reads her quarterly totals directly from the cells and submits them to HMRC. That connection is a valid digital link. So the chain from bank feed (or CSV import) to spreadsheet to bridging software to HMRC is fully digital.
Practical tips for setting up before April 2026
If your qualifying income (gross self-employment plus UK property income) exceeds £50,000, you need digital records in place from 6 April 2026. Here is how to prepare:
Choose your record-keeping method now. Decide whether you will use accounting software with bank feeds or a spreadsheet with bridging software. Either works. If you have an accountant, ask which they support.
Set up bank feeds or CSV imports. If you use accounting software, connect your business bank account and credit card. If you use a spreadsheet, arrange to receive statements and agent reports in a digital format you can import rather than retype.
Create your category structure. Set up income and expense categories that match the Self Assessment return headings. For property income, common categories include rent received, insurance, repairs, agent fees, mortgage interest, and other allowable expenses. Getting the categories right from the start saves time at year end.
Run a trial quarter. Pick any three-month period before April 2026 and record your transactions as if MTD were already live. Submit nothing, but go through the process of categorising transactions and checking that your totals look reasonable. This trial run will expose any gaps in your setup before it counts.
Keep paper records alongside digital ones. Do not throw away receipts just because you have gone digital. HMRC may ask for evidence supporting a claimed expense, and a paper receipt or invoice remains valid evidence. Digital records are what you submit; paper records are what you keep as backup.
FAQ
Do I need to scan all my receipts for MTD?
No. HMRC does not require you to scan, photograph, or digitise paper receipts and invoices. You need digital records of the transaction data (date, amount, category), but the underlying paper documents can remain in paper form.
Can I use a spreadsheet instead of accounting software?
Yes. A spreadsheet is a valid digital record under MTD, provided it connects to HMRC-recognised bridging software via a digital link for submission of your quarterly updates.
Does copy and paste count as a digital link?
Yes. HMRC confirms that copying and pasting data between software applications or between cells in a spreadsheet qualifies as a digital link. The data is transferring electronically without manual retyping of figures.
What happens if I type figures manually from a paper document?
Typing figures from a paper document into software is not a digital link. Where possible, use bank feeds, CSV imports, or other electronic methods to get data into your digital records. HMRC is taking a pragmatic approach during the soft-landing period, but the requirement for digital links applies from the start.
What penalty can HMRC charge for poor record keeping?
HMRC can charge a penalty of up to £3,000 for inadequate records. This is separate from the points-based penalties for late quarterly submissions. Record-keeping penalties typically arise during HMRC enquiries.
Need help setting up your digital records?
Getting your record-keeping right before April 2026 avoids problems down the line. Our tax advisory team can review your current setup and recommend the best approach for your circumstances. If you want to move to cloud accounting, our Xero advisory team can handle the migration, connect your bank feeds, and configure everything for MTD compliance. Get in touch to arrange a consultation.
