What are the digital record keeping requirements for Making Tax Digital?
Answered 11 March 2026
Making Tax Digital (MTD): Digital Record Keeping Requirements
What the law says
The legislative framework for MTD digital record keeping for income tax is established by inserting Schedule A1 into TMA 1970 (via s.60 of the relevant Finance Act). The Schedule applies to a person within the charge to income tax who carries on:
- a trade, profession or vocation (profits chargeable under Part 2 of ITTOIA 2005);
- a property business (profits chargeable under Part 3 of ITTOIA 2005); or
- any other activity giving rise to profits or income chargeable under Part 2 or 3 of ITTOIA 2005.
Certain persons are excluded, including trustees of charitable trusts and trustees of exempt unauthorised unit trusts (unless they elect in), and certain excluded activities (e.g. Lloyd's underwriting, REIT distributions, open-ended investment companies).
HMRC Guidance / Practice
1. Who Must Keep Digital Records (VAT)
All VAT registered businesses must keep and preserve certain records and accounts within functional compatible software.
2. What is Functional Compatible Software?
Software (or a set of programs/applications) that must be able to:
- record and preserve digital records;
- provide HMRC with information and returns from data held in those digital records, using the API platform; and
- receive information from HMRC using the API platform.
The complete set of digital records does not have to be held in one place or one program — they can be kept in a range of compatible digital formats.
3. Designatory Data
You must have a digital record of:
- your business name;
- the address of your principal place of business;
- your VAT registration number; and
- any VAT accounting schemes that you use.
4. Supplies Made
For each supply you make, you must digitally record the:
- time of supply (the tax point);
- value of the supply (net value excluding VAT); and
- rate of VAT charged.
Only supplies recorded as part of your VAT Return need to be recorded in functional compatible software. Where more than one supply is on an invoice and they fall within the same VAT period at the same VAT rate, they can be recorded as a single entry.
5. Supplies Received
For each supply you receive, you must digitally record the:
- time of supply (tax point);
- value of the supply; and
- amount of input tax you will claim.
There is no requirement to record inputs split by VAT rate. If more than one supply is on an invoice, you can record the totals from the invoice.
6. Adjustments
Where input tax claimed or output tax due has been changed as a result of an adjustment, only the total for each type of adjustment needs to be kept in functional compatible software — not the underlying calculation details. The rule with the force of law states you do not need to amend the digital record of the original supply.
7. Key Relaxations
| Scenario | Rule (force of law) |
|---|---|
| Third party agent – supplies made | Supplies do not fall within digital record keeping requirements until you receive information from the agent; a summary document can be treated as one invoice |
| Third party agent – supplies received | Purchases do not fall within digital record keeping requirements until you receive information from the agent; a summary document can be treated as one invoice received |
| Charity fundraising events | All supplies made at a volunteer-run event may be treated as covered by one invoice, and all supplies received likewise |
| Supplier statements | Where a supplier issues a statement for a period, you may record the totals from the statement (rather than individual invoices), provided all supplies are on the same return and total VAT at each rate is shown |
8. Original Records
Some records must still be kept in their original form (e.g. a C79 import VAT certificate). If you deregister from VAT, you no longer need to keep digital records in functional compatible software, but must still retain VAT records for the required period.
Citation sources
All VAT registered businesses must keep and preserve certain records and accounts within functional compatible software. Some software will record all your VAT records and accounts information. However, there are some records that by law must be kept and preserved in their original form, either for VAT purposes or other tax purposes. For example, you must still keep a C79 (import VAT certificate) in its original form.
A charity fundraising event can include a number of supplies that would need to be recorded on a VAT return. Charities may find it difficult to meet the strict digital record keeping requirements for events run by volunteers. Therefore, HMRC accepts that charities can digitally record all supplies made (relating to the event) as if it were a single invoice, and all supplies received can be treated the same. The following rule has the force of law: Where supplies are made or received during a cha
A third party agent can act for, or represent, a business in arranging supplies of goods or services. The supplies that you arrange are made by, or to, the business represented. A third party agent may make purchases on behalf of a business and it may not be possible or practical for them to digitally record every single supply received. Therefore, HMRC accepts businesses digitally recording these as a single invoice. The following rule has the force of law: Where a third party agent makes purch
Some businesses record the value of each supply from a supplier statement, instead of doing individual invoices. This generally occurs when a business receives a large number of invoices from the same source. HMRC encourages businesses to record the individual supplies digitally, because it lowers the risk of invoices being missed or entered twice (once as an invoice and once as part of the statement). There’s also less risk of the wrong rate of VAT being applied. HMRC accepts there may be addit
Functional compatible software is: a software program or set of software programs a product or set of products an application or set of applications It must be able to: record and preserve digital records provide HMRC information and returns from data held in those digital records, using the API platform receive information from HMRC, using the API platform If software you use has all of these functions, the digital links rules in paragraph 10 may not be relevant to you. Some software programs w
A business has functional compatible software that scans the invoices received and puts the information in its ledger. If the image is retained and contains all the detail required for VAT purposes, the business does not need to keep the original invoice, unless it’s required for another purpose. If you deregister from VAT, you no longer need to keep digital records in functional compatible software. However, you must still retain your VAT records for the required period.
You must have a digital record of: your business name the address of your principal place of business your VAT registration number any VAT accounting schemes that you use
Where you’re allowed or required to adjust the input tax claimed or output tax you owe (according to the VAT rules), you must record this adjustment in functional compatible software. Only the total for each type of adjustment will be required to be kept in functional compatible software, not details of the calculations underlying them. If the adjustment requires a calculation, this calculation does not need to be made in functional compatible software. If the calculation is completed outside of
PART 4 Administration, avoidance and enforcement Reporting and record-keeping Digital reporting and record-keeping for income tax etc 60 1 TMA 1970 is amended as set out in subsections (2) and (3). 2 After section 12B insert— Digital reporting and record-keeping Digital reporting and record-keeping 12C Schedule A1 (digital reporting and record-keeping) has effect. 3 Before Schedule 1AA insert— SCHEDULE A1 Digital reporting and record-keeping Section 12C PART 1 Application Application: persons 1
For each supply you receive you must record the: time of supply (tax point) value of the supply amount of input tax that you’ll claim This only includes supplies recorded as part of your VAT Return, supplies that do not go on the VAT Return do not need to be recorded in functional compatible software. For example, wages paid to an employee would not be covered by these rules. There is no requirement under the regulations to record inputs for the period split by VAT rate. The time of supply is ty
For each supply you make, you must record the: time of supply — the tax point value of the supply — the net value excluding VAT rate of VAT charged This only includes supplies recorded as part of your VAT Return. Supplies that do not go on the VAT Return do not need to be recorded in functional compatible software. For example, intra-group supplies for a VAT group are not covered by these rules. The time of supply is the date you must declare output tax on. This is generally when you send a VAT
A third party agent can act for, or represent, a business in arranging supplies of goods or services. The supplies that you arrange are made by, or to, the business represented. HMRC is aware of a number of circumstances in which a third party agent makes supplies on behalf of a business and it may not be possible or practical for the business to record every single supply digitally. Therefore, we accept businesses recording these digitally as a single invoice. The following rule has the force o