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Home MTD & Tax Record-Keeping: Everything UK Taxpayers Need to Know
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MTD & Tax Record-Keeping: Everything UK Taxpayers Need to Know

By Team FVA Tax Saving tips and Advice

Keeping proper records of your finances is an important duty for every UK tax payer. Whether you are self-employed, a property owner, or have tax-chargeable income and chargeable gains, adhering to HMRC record-keeping requirements is essential. Proper records not kept can lead to penalties, and it is essential that you are aware of such obligations.

 

Legal Requirements for Retaining Tax Records

 

Taxpayers must maintain and preserve their accounts for a duration depending on the respective sources of income. HMRC, or Her Majesty's Revenue and Customs, provides precise and detailed information concerning for how long taxpayers in different categories should preserve their records:

 

Individuals Who Do Not Carry On a Trade

 

If you do not trade but must still file a Self-Assessment Tax Return, you will need to keep complete records of your income and of any capital gains. You should continue to keep records of this kind until the later of the following points in time:

 

  • A period of 22 months will be operating from the end of the tax year.
  • The deadline by which the window for enquiries will be closed.
  • The particular date on which the enquiry or investigation into the Return is formally closed and no further information will be collected or scrutinized.

 

Self-Employed Individuals, Partnerships, and Landlords

 

For the self-employed, in business partnership, or earning income from other properties, the rules for the maintenance of records become far more stringent:

 

  • Five years in total and 10 months from the end of the tax year.
  • The sixth anniversary of the end of the accounting period.
  • The point of time when enquiry window is closed.
  • The actual date when an investigation into the Return is finalized is determined. 

Poor compliance with these significant record-keeping requirements can draw significant financial penalties that can be even as high as £3,000 for each breach of compliance.

 

Types of Records to Keep

 

In order to be in line with HMRC rules, the taxpayer will need to keep different financial records, such as:

 

  • Income records: Invoices, payslips, bank statements, and dividend vouchers.
  • Cost records: Invoices, receipts, and business expenses.
  • Leasing property records: Rent receipts, rental agreements, and repair bills.
  • Capital gains records: Capital gain accounts involve significant documents regarding the sale and purchase of various assets. These assets may be real estate investments, stocks, and other investments.
  • VAT records (where necessary): VAT invoices, returns, and workings.

  

Making Tax Digital (MTD) Requirements

 

Making Tax Digital (MTD) is HMRC's proposal to make the UK tax system digital by employing digital record-keeping and reporting of taxes. The current MTD legislation takes effect as follows:

 

MTD for VAT

 

Since April 2022, all VAT-registered businesses, irrespective of turnover, are required to meet the requirements of MTD by keeping digital records and making VAT returns using MTD-capable software.

 

MTD for Income Tax Self Assessment (MTD ITSA)

 

From April 2026, landlords and self-employed persons with business or property income of more than £50,000 a year will be required to keep digital records and make quarterly payments using MTD-compatible software.

 

  • Those currently paying in the range of £30,000 to £50,000 will be expected to adapt from April 2027.
  • Firms that generate less than £30,000 in profit are now under scrutiny as potential candidates for future release under MTD.

 

Benefits of Digital Record-Keeping

 

With the assistance of MTD-friendly software, individuals and companies can simplify their tax affairs by:

 

  • Reducing errors: Computerizing calculations and reducing human error when inputting data.
  • Enhancing efficiency: Providing real-time insight into financial performance.
  • Compliance assurance: Maintaining conformance to HMRC regulations to avoid penalties.
  • Streamlining tax filing: Computerizing VAT returns and Self-Assessment returns.

 

Choosing the Right MTD-Compliant Software

 

HMRC-approved MTD software options include:

 

 

Penalties for Non-Compliance

 

Non-compliance with HMRC's record-keeping and Making Tax Digital  obligations can result in:

 

  • A £3,000 fine for each failure for poor record-keeping.
  • Further penalties for tax return errors because of lost records.
  • MTD non-compliance fines from 2026 under HMRC's new points system of penalties.

 

How Fair View Accountants Can Help

 

Fair View Accountants, a professional accounting firm in Watford, offers expert guidance on tax compliance, record-keeping, and MTD requirements. Our services include:

 

In addition to tax compliance and MTD support, Fair View Accountants also offer independent auditing services to help businesses improve financial transparency. Learn more about our Independent Auditing Services in Watford.


Conclusion:

 

Keeping proper records is not only a legal requirement that must be adhered to, but it is also a very vital part of keeping your finances in a cost-effective and efficient manner. With HMRC's Making Tax Digital initiative, it is now imperative for businesses as well as individuals to shift towards digital means of keeping records so that they are in line with existing legislations and do not have to pay any possible fines for not doing so. Utilizing MTD-compliant software and seeking professional advice from trained experts like Fair View Accountants, taxpayers can go a long way in simplifying their financial management process and towards making the tax compliance process easy. Contact us today!

 

FAQs

 

What records do I need to keep for my Self-Assessment tax return?

You need to maintain records of income, expenditure, capital gains, and tax reliefs taken.

 

How long do I need to keep tax records?

  • Individuals: At least 22 months.
  • Businesses: At least 5 years and 10 months.


What happens if I fail to keep proper records?

You could be charged penalties of up to £3,000 per failure.

 

Is digital record-keeping mandatory under MTD?

Yes, for VAT-registered businesses and shortly for self-employed people with profits over £50,000.

 

When does MTD for Income Tax take effect?

April 2026 for companies with profits above £50,000, April 2027 for those with profits above £30,000.

 

Which software should I use for MTD compliance?

HMRC-approved software like QuickBooks, Xero, or FreeAgent.

 

Do landlords need to comply with MTD?

Yes, if their property income in a year is over £50,000 from April 2026.

 

Can I still submit paper tax returns?

No, MTD requires digital submission through compatible software.

 

Are there exemptions from MTD?

There are few exemptions for special cases, for instance, disability or no internet access.

 

How can Fair View Accountants help with MTD?

We provide professional guidance, software installation, and compliance services. For details, visit our website.