Digital receipts and expense tracking for MTD compliance

Understanding MTD requirements

The UK's Making Tax Digital (MTD) initiative aims to bring tax recording and reporting into the digital age. For qualifying businesses, this means maintaining digital records of all income and expenses. The traditional paper-only records are no longer sufficient.

MTD ITSA timeline

For Income Tax Self Assessment (ITSA), the MTD timeline is set as follows:

• April 2026: Businesses and landlords with income over £50,000 must comply.
• April 2027: Businesses and landlords with income over £30,000 must comply.

What makes a digital record?

A digital record comprises the actual transaction data—this includes the date, amount, category, and applicable VAT. Simply snapping a photo of the receipt does not fulfill MTD requirements, although it can serve as backup evidence. It's the digital record within your software that must be MTD-compliant.

HMRC guidelines on digital receipts

HMRC accepts digital photos of receipts, but stresses that they serve as supporting evidence rather than the primary record. Compliance requires the transaction details to be captured and organised digitally.

Essential details for each expense

For every expense, ensure you capture these details:

• Date of the transaction
• Supplier name
• Amount
• VAT, if applicable
• Expense category

Top apps for receipt capture and tracking

Several apps make capturing receipts and tracking expenses as straightforward as possible. Here's a comparison:

• Dext (formerly Receipt Bank): Known for powerful data extraction and integration capabilities.
• AutoEntry: Offers comprehensive data capture and is user-friendly for small businesses.
• FreeAgent: Ideal for freelancers and small businesses with straightforward accounting needs.
• QuickBooks: Widely used and known for robust accounting features and integrations.
• Xero: Offers extensive features and strong integration options.

Categorising expenses correctly

HMRC expects expenses to be correctly categorised. Common categories include:

• Materials
• Tools
• Vehicle expenses
• Protective clothing
• Subcontractor costs
• Phone expenses
• Home office costs

Avoid common mistakes

Ensure compliance by steering clear of these errors:

• Keeping receipts only on your phone camera roll is not MTD-compliant.
• Avoid mixing personal and business expenses.
• Don't lose essential receipts, such as those for petrol.

Bank feeds as digital records

Connecting your business bank account to your accounting software provides a digital record of transactions, satisfying one of the primary MTD requirements.

Practical setup guide

Follow these five steps to prepare your expense tracking for MTD:

1. Choose the right accounting software that supports MTD features.
2. Connect your bank accounts to enable automatic transaction records.
3. Use an app for receipt capture to ensure every expense is recorded digitally.
4. Regularly review and categorise expenses to align with HMRC guidelines.
5. Keep backups of digital records to prevent data loss issues.

Further reading

• Self assessment calculator
• Allowable expenses for self-employed in the UK
• HMRC's MTD record-keeping guidance