How to Keep Digital Records of Your Expenses for MTD
A practical guide to keeping digital records of your business expenses for Making Tax Digital — what to capture, how to categorise it, what a digital link is, and how ThisQuarter stores it securely.
The short answer
To keep MTD-compliant digital records of expenses, capture each cost electronically — the date, amount and category — as it happens, keep the underlying receipt, and make sure the figures reach HMRC without manual retyping (a 'digital link'). In ThisQuarter you record or import each expense against the right category, keep it in the encrypted local database, and it flows straight into your quarterly update — no re-keying.
Keeping digital records of your expenses is one of the core requirements of Making Tax Digital — and it's simpler than it sounds. This guide covers exactly what to capture, how to categorise it, and how ThisQuarter keeps it compliant and secure.
What "digital records" actually means
For each business expense, MTD wants the transaction data captured electronically:
- the date of the cost,
- the amount, and
- the category it belongs to.
That data can live in ThisQuarter or in a spreadsheet you import. What isn't acceptable is a purely paper system, or numbers you only total up once a year.
You don't have to scan every receipt to meet the digital-records rule — but you do need to keep the receipts for the usual retention period, and the transaction data must be digital.
Step by step
- Capture each expense electronically as it happens — date, amount, category — in ThisQuarter or your spreadsheet.
- Keep the receipt (a photo or scan is fine) in case HMRC asks.
- Choose consolidated or itemised expenses depending on your turnover.
- Let the figures flow to HMRC without retyping — ThisQuarter carries them straight into the quarterly update, preserving the digital link.
- Review and submit each quarter, and keep the receipt.
Consolidated vs itemised expenses
ThisQuarter supports both, and shows one at a time per business:
- Consolidated — a single expenses figure. Allowed only if your turnover is below the VAT threshold.
- Itemised — each category entered separately, each with its disallowable amount (the portion not deductible, e.g. private use).
If your turnover crosses the threshold during the year, ThisQuarter flags that you can no longer use consolidated expenses.
The digital link — no retyping
MTD requires that once a number is captured, it reaches HMRC without manual re-keying. Copying and pasting between documents breaks this "digital link". Because ThisQuarter carries your recorded or imported figures straight through to the submission, the link is preserved end to end.
How ThisQuarter keeps it secure
Everything — income, expenses, receipts data, client details — is stored in an encrypted local database on your own machine. Nothing sensitive is uploaded to ThisQuarter's servers. You keep full control of your records while meeting the digital-records requirement.
Next, see the guide on importing your figures from a spreadsheet to bring existing records in quickly, or submitting a quarterly update to file them.
Step by step
- 1
Capture each expense electronically
Record every business cost as it happens — the date, the amount, and which expense category it belongs to. This can be in ThisQuarter directly or in a spreadsheet you later import. The key MTD rule is that the transaction data exists in digital form, not just on paper.
- 2
Keep the underlying receipt
Store the receipt or invoice for each expense — a photo or scan is fine. You don't have to attach every receipt to satisfy the digital-records rule, but you must keep them for the normal record-retention period in case HMRC asks.
- 3
Choose consolidated or itemised
If your turnover is below the VAT threshold you can record a single consolidated expenses figure. Otherwise, record each category separately (cost of goods, travel, premises, and so on), each with its disallowable portion.
- 4
Let the figures flow to HMRC without retyping
MTD requires a 'digital link' — no copying and pasting or re-keying between your records and HMRC. In ThisQuarter your recorded or imported expenses feed straight into the quarterly update, preserving that link.
- 5
Review before you file
Each quarter, check your category totals against your records on the review screen, confirm they're correct, and submit. Your figures and the submission receipt are kept in the encrypted local database.
Frequently asked questions
Do I have to scan every receipt for MTD?
No. The digital-records rule is about capturing each transaction's data (date, amount, category) electronically. Keeping the receipts themselves is still required for the normal retention period and is good practice, but you don't have to scan and attach every one to be compliant.
Can I keep my expenses in a spreadsheet?
Yes. A spreadsheet is an acceptable digital record, as long as the figures reach HMRC through a digital link rather than manual retyping. ThisQuarter can import a labelled spreadsheet so your existing records feed straight into the quarterly update.
What is a 'digital link' for expenses?
It's an electronic transfer of your figures with no manual intervention — a formula, a file import, or a software submission to HMRC. Copying and pasting or retyping numbers breaks the digital link. ThisQuarter preserves the link by carrying your recorded/imported figures straight through to the submission.
How does ThisQuarter store my expense records?
All your data — income, expenses, client details — is held in an encrypted local database on your own computer (SQLCipher). Nothing sensitive is sent to ThisQuarter's servers. You keep control of your records, and they're protected at rest.
What's the difference between an allowable and a disallowable expense?
An allowable expense reduces your taxable profit. A disallowable amount is the part of a cost that can't be deducted — for example the private-use share of a mixed expense. When you itemise, you record the full cost and its disallowable portion separately so the tax calculation is correct.
Related reading
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How to Review and Amend a Submitted Quarterly Update
How to correct a quarterly update you've already filed in ThisQuarter — unlocking the period, amending the cumulative figures, resubmitting to HMRC, or cancelling to restore the filed version.
How to Add a Client and Send an HMRC Authorisation Request
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