Create Digital Records
A digital record is a record of your income or expense that is created and stored using software that works with Making Tax Digital for Income Tax.
You or your agent need to create and store digital records of your self-employment and property income and expenses.
You must also continue keeping records like you normally do for Self Assessment. For example, you still need to keep original records or supporting documents (or copies of them) that you have used to prepare your tax return.
Before creating your digital records, you should check that you have followed all the steps in signing up, including authorising Calceum.
Using software for digital record keeping
The software you choose needs to either:
- Create digital records and make submissions to HMRC
- Connect to your own record-keeping software (such as a spreadsheet) and make submissions to HMRC — this is also known as ‘bridging software’
Calceum supports both approaches. You can choose to use either:
- Calceum as a complete MTD compliance and tax management platform — with bank feeds, document processing, bookkeeping, and reporting built in
- Calceum as bridging software alongside your existing spreadsheet or accounting software
If you use more than one product, you’ll need to make sure they can work together to meet all your Making Tax Digital for Income Tax requirements, including digitally linking your records between the products.
If you use a single software product
Calceum will allow you to create your digital records, send HMRC your quarterly updates and submit your tax return.
You do not need to digitally link your software to other products if you use a single software product to do everything.
If you use more than one software product
You need to digitally link your record-keeping software and software that uses your records to make submissions to HMRC.
You should do this when you set up the compatible software or before you:
- Send your quarterly updates to HMRC
- Submit your tax return
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:
- Copy information by writing it out in another cell or in other software
- Use ‘cut and paste’ or ‘copy and paste’ to move records
How to digitally link your records
You can digitally link your records in different ways, including:
- Using linked cells in spreadsheets — for example, if you have a formula in one sheet that mirrors the source’s value in another cell and the cells are linked
- Emailing a spreadsheet containing digital records, so the information can be imported into another software product
- 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 software
- XML, CSV importing and exporting, and downloading and uploading files
- Using an automated data transfer
- Using an application programming interface (API) transfer
You do not need to digitally link:
- Records of income that are not self-employment or property income and expenses — for example, income from dividends or savings
- Software that’s not used to create digital records of self-employment and property income and expenses — for example, software that takes bookings or a till system that records sales receipts
- Software that’s only used to submit your tax return with software used to keep digital records and send quarterly updates — the first type of software gets the data directly from HMRC
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.
Records you need to keep digitally
You need to create and store digital records of your self-employment and property income and expenses, such as:
- Self-employment income — including sales, takings and fees
- Self-employment expenses — including the cost of stock, travel costs, office costs and financial costs
- Property income — including rent, premiums for the grant of a lease, reverse premiums and inducements
- Property expenses — including rent, costs of repairs, maintenance or other services
When you create records of your income or expenses, you will need to record the:
- Amount
- Date when the income was received or expenses incurred
- Category — the type of category you will use depends on the type of business you have
Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment.
If you are a sole trader
If you have more than one sole trader business, for each source of self-employment income you have you will need to:
- Create separate digital records
- Send separate quarterly updates
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 and send separate quarterly updates for each.
Using the trading income allowance
You will need to create digital records of your self-employment income and expenses and include them in your quarterly updates if you claimed the trading income allowance on your last Self Assessment tax return.
At the end of the tax year, you can claim the allowance when you submit your tax return using Calceum.
You do not need to keep digital records of self-employment income for the purposes of Making Tax Digital for Income Tax, if both of the following apply:
- The income was below the trading income allowance threshold
- You did not declare the income on your previous tax return
If you are a landlord or get property income
You should create separate digital records for your personal UK and foreign property businesses. Your:
- UK properties are treated as one ‘UK property business’
- Non-UK properties are treated as one ‘foreign property business’
Your share of any jointly let properties will form part of either your UK or foreign property business.
Using the Rent-a-Room Scheme
You will need to create digital records of your UK property income and expenses covered by the scheme and include it in your quarterly updates if either you:
- Used the Rent-a-Room Scheme for your home and received income from another UK property on your last Self Assessment tax return
- Did not receive any other UK property income but the gross income from your UK property was more than the Rent-a-Room Scheme threshold on your last Self Assessment tax return
Using the property income allowance
You will need to create digital records of your UK property income and expenses and include them in your quarterly updates if you claimed the property income allowance on your last Self Assessment tax return.
At the end of the tax year, you can claim the allowance when you submit your tax return using Calceum.
You do not need to keep digital records of property income for the purposes of Making Tax Digital for Income Tax, if both of the following apply:
- The income was below the property income allowance threshold
- You did not need to declare the income on your previous tax return
If your software connects to your bank account
If you use Calceum’s bank connection feature to help you create digital records, you may need to add additional detail, such as expenditure categories.
Some transactions may not appear in full in your bank feed and will need to be created separately as a digital record.
You should check your digital records are accurate before sending your quarterly update to HMRC.
Records you can choose to keep digitally
There are some records you do not need to keep digitally but can choose to do so. This can help you maintain a more complete view of your tax affairs, as every time you send a quarterly update you’ll be able to see an estimated tax bill in Calceum.
You do not need to create digital records for all other sources of income reported through Self Assessment, such as income from:
- Employment (PAYE)
- Your share of profit from a partnership as an individual partner
- Dividends (including those from your own company)
- A State Pension
- Private pensions
For example, you might be a sole trader that also receives a share of profit from a partnership as an individual partner. You will need to create digital records for your sole trader business but not for your share of profit from the partnership.
Disallowable expenses
These are expenses that are not wholly for business use, so a portion of them cannot be claimed on your tax return.
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 Calceum.
For example, you have a mobile phone bill which totals £200. The bill is made up of:
- £125 for business calls
- £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 expenses
If you’re sure you’ll use a simplified expenses scheme, you do not need to create digital records of your actual expenses.
If you’re not sure, you should create digital records of all expenses.
If you use simplified expenses, you will need to make an adjustment for this before you finalise your Income Tax position.
Find out more about simplified expenses.
Simpler categorisation if your turnover is below the VAT threshold
You can choose to categorise your digital records in less detail for a tax year, if you have either of the following:
- Total UK property turnover of less than £90,000 (this also applies if you are a landlord that jointly lets a property)
- Turnover from a source of self-employment that is less than £90,000
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.
If you’re a sole trader, you only need to record whether a transaction is income or an expense.
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:
- Record if a transaction is an income or an expense.
- If it is an expense, record whether the expense is for a restricted finance cost.
If your turnover later reaches the VAT threshold
If your turnover reaches £90,000, you will need to categorise all digital records for that income source in full before you can send your quarterly update, 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 send quarterly updates or submit your tax return.
If you’re unsure if your turnover will reach £90,000, you should categorise your digital records in full detail.
What to do at the start of the tax year
There are some decisions you should think about at the beginning of the tax year, even though you might currently make them after the tax year has ended.
Consider your accounting period
Calceum will default to an accounting period that aligns with the tax year (6 April to 5 April).
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 Calceum before you send your first quarterly update. This will make your record keeping simpler.
You cannot change to calendar update periods partway through a tax year.
Consider which accounting method to use
You may want to consider which accounting method you’ll use for your record keeping. This will either be:
If you’re not sure, you can create digital records during the tax year and then confirm your accounting method when you submit your tax return.
When to create digital records
You will need to create digital records for a quarterly period before either:
- The quarterly update deadline for that period
- Sending that quarterly update, if this is before the deadline
For example, you will need to create a digital record of income you receive on 30 April before (all of the following):
- You send your first quarterly update
- 7 August — 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.
If you estimate your income or expense
If a trust or partnership tells you about your personal self-employment or property income after the quarterly update deadline, you can either:
- Estimate your income or expense and then confirm it later
- Record the income or expense once you are notified of it
If you estimate, you should:
- Create a digital record for the transaction.
- Update the digital record when the income or expense is confirmed.
It will then be included in your next quarterly update.
Correcting your digital records
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 send your next quarterly update.
If you have an agent that deals with your record keeping, they can do this on your behalf.
You can make corrections directly in Calceum. 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 Calceum.
When to correct digital records
If you find an error or missing information in your digital records, you should correct it as soon as possible.
After making the correction, it will be included when you send your next quarterly update.
If you have already sent your fourth quarterly update, you will need to make any corrections before you finalise your Income Tax position.
How long you will need to store digital records
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.
If you decide to change your software
You can read more about what you will need to do if you decide to change your software.
What to do next
When you have chosen how you will create and store your digital records, you should check when you need to send updates to HMRC.