What a digital record is
The record is created and stored in the software, not written on paper and typed up later. The categories you use are the same income and expense categories as Self Assessment, which is why the totals still line up with the tax return at the end of the year.
You do not have to keep every other source of income as a digital record. A partnership share, dividends, savings interest and pensions can be added before you submit the tax return, although you can choose to keep them digitally if your software supports it.
The rule that catches people out
Once a record has been created and sent to HMRC in a quarterly update, you must not move it by hand, either inside your record-keeping software or between products. In HMRC's words, you must not:
- Write the information out again in another cell or in another piece of software
- Use cut and paste, or copy and paste, to move records
What counts as a digital link
If you use more than one product, or move data between spreadsheets, the transfer has to be digital. HMRC's examples include:
- Linked cells in a spreadsheet, for example a formula in one sheet that mirrors the value in another cell
- Emailing a spreadsheet containing digital records so it can be imported into another product
- Transferring records onto a portable device, such as a memory stick, and giving it to someone who imports the data
- XML and CSV import and export, and downloading and uploading files
- An automated data transfer using an application programming interface
How long to keep them
At least five years after the 31 January submission deadline for the tax year, which is the same period you already have to keep records for Self Assessment. Keeping them in the software you file from is the simplest way to satisfy it.
What this looks like in practice
The practical test is simple: nothing gets typed twice. One record per sale, expense or trip, created where the work happens, and every later total computed from it rather than copied out of it.
TradeKit is built around that test. An invoice creates the income record, a photographed receipt or an expense creates the cost record, mileage creates its own entry, and the quarterly totals are added up from those records rather than typed into a spreadsheet at the end of the quarter.